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Author: 

U.S. Federal Trade 
Commission 

Title: 

Report on the merger 
movement 

Place: 

Washington, D.C. 

Date: 

1948 



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MASTER NEGATIVE # 



COLUMBIA UNIVERSITY LIBRARIES 
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ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD 



tUSINESS 

D225 
Un3483 



U. S, Federal Trade Commission. 

Eeport on the jnerger jno^mentj a summary report. 
Washington, U. S. Govt. Print. Off., 1948, 
vl, 134 p. fold, map, 23 <!ra. 



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1. Consolidation and merger of corporations— U. S. 2. TrustB, In- 
dustrial— U. S. 



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^5 REPORT OF THE 

FEDERAL TRADE COMMISSION 

ON 

the/merger movement 



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AISUMMARY REPORT 




. TTNITED STATES 
GOVERNMiT^T .'PRINTING ;0;PFICR 
WASHINGTON. 5 1948 



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EDERAL TRADE COMMISSION 



Robert E. Freer, Chairman 
Garland S. FpiGUSON 
EwiN L. Davis ' 
William A. Ayres ■, 

Lowell B. Mason 

Otis B. Johnson, Secretary 



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TABLE OF CONTENTS 

Foreword ^'** 

Part I. General Aspects of the Current Merger Movement T 

Legal history *■ 

Importance of amendment to antitrust policy .__'^~ ^ \ 

Objections to the amendment 

Current trend of the Merger movement ."']' \t 

The profits-merger spiral 

Mergers and economic concentration ^ 

Part IL Types of Merger Activity _"_ ^ 

Horizontal acquisitions 

(1) Direct horizontal acquisitions _.__ fo 

(2) Substitute product acquisitions _.._ ' oc 

(3) Chain acquisitions ' 

Vertical acquisitions W... ^^ 

(1) Forward vertical acquisitions _... fj 

(2) Backward vertical acquisitions ....... 40 

(3) Two-way vertical acquisitions T. 

Conglomerate acquisitions ^ 

Tie-in acquisitions. __ ^^ 

Conclusion 63 

70 

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FOREWORD 

This report marks nearly the silver anniversary of the recom- 
mendation by the Federal Trade Commission that section 7 of the 
Clayton Act be amended. For 22 years the Commission has urged 
that Congress tighten the law, which now permits corporations to 
buy the assets rather than (or in addition to) the stock of competing 
firms, and thereby evade the original intent of Congress "to arrest 
the creation * * * of monopolies in their incipiency." 

Since 1945 companion bills designed to remedy this outstanding de- 
fect in the law have regularly been introduced in the Senate and 
House of Representatives by Senator Joseph C. O'Mahoney and Rep- 
resentative Estes Kef auver ; twice, that is, in both the Seventy-ninth 
(Democratic) and the Eightieth (Republican) Congresses, the House 
bill has received the approval of a subcommittee of the House Judi- 
ciary Committee ; twice it has been approved by the full House Judi- 
ciary Committee; and twice it has failed to emerge from the House 
Rules Committee. In the Eightieth Congress the Senate bill was ap- 
proved on May 17, 1948, by a subcommittee of the Senate Judiciary 
Committee, headed by Senator William Langer. But, like the House 
bill, the Senate bill has never reached the floor for debate. 

It is the purpose of this report not merely to add one more to the 
long list of recommendations made by the Commission for the amend- 
ment of this part of the Clayton Act, but rather to bring together in 
one place the more important legal and economic considerations re- 
lating to the proposal and also to describe in some detail the character 
of the merger movement which has been under way since World 
War II. The present period of consolidation, acquisition, and merger 
is the fourth which has taken place in American industry since shortly 
before the turn of the century : 

I\)ur distinct waves of mergers are discernible in the past half century. 
The first, from 1890 to 1904, was motivated both by the onslaught of mass pro- 
duction and by the drive for monopoly status * * * The second and extra- 
ordinary movement of the twenties was largely financial in origin, and was 
inspired by the opportunities for promoters' profits in the capitalization of 
increased assets and of intangible values realized through the sale of new se- 
curities * * * A third merger movement, during the late thirties, was acti- 
vated principally by the desire for marketing outlets and distributive econo- 
mies * * * ^hile a fourth, now pending, seems encouraged by the ac- 
cumulation of large wartime working capital, by the unbalanced activities of 

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FOREWORD 



many companies, and by the desire to achieve a strong strategic position be- 
fore the return to a buyers' market.* 

With this over-all or summary report, with the Commission's re- 
port of March 7, 1947, on "The Present Trend of Corporate Merg;ers 
and Acquisitions," with the two printed volumes of hearings before 
the subcommittee of the House Judiciary Committee,^ with the ap- 
proximately 700 typewritten pages of transcript of hearings before 
ithe subcommittee of the Senate Judiciary Committee, with two 
printed reports of the House Judiciary Committee,^ with the mate- 
rial presented before the Temporary National Economic Committee 
in the form of printed hearings and monographs, and with the Com- 
mission's own printed reports and recommendations on the matter 
going back nearly a quarter of a century, the record on the proposed 
amendment may now be said to be fairly complete. 

»Yale Law Journal, "Corporate Consolidation and the Concentration of Economic 
Power: Proposals for Revitalization of Section 7 of the Clayton Act," February 1948, 

' > 79th Cong., 1st sess., Hearings on H. R. 2357, "To Amend Sections 7 and 11 of. the 
Clayton Act ;" 80th Cong., Ist sess., Hearings on H. R. 515, "To Amend Sections 7 and 11 

of the Clayton Act." ^ «« ,«^« 

»79th Cong., 2d sess., Report No. 1820, "To Accompany H. R. 5535 , March 26, 1946; 
80th Cong., Ist sess., Report No. 596, "To Accompany H. R. 3736", June 17, 1947. 



FEDERAL TRADE COMMISSION 
THE MERGER MOVEMENT: A SUMMARY REPORT 

Part I. GENERAL ASPECTS OF THE CURRENT MERGER 

MOVEMENT 



LEGAL HISTORY 



Section 7 of the Clayton Act prohibits corporate acquisitions which 
substantially lessen competition between the acquiring and acquired 
firms or restrains commerce in any section or community or tend 
to create a monopoly.^ Yet the law, as it now stands, can readily be 
evaded by one of two means. Under the first alternative, the ac- 
quiring company may dispense entirely with the acquisition of stock, 
confining its purchase to assets. There has never been any doubt that 
such acquisitions of assets, where stock is not involved, are perfectly 
legal under the Clayton Act and cannot be reached by the Commis- 
sion. It is for this very reason that many large corporations have 
adopted the deliberate policy of purchasing assets whenever inter- 
state commerce (and thus the Federal law) is involved, and of making 
stock acquisitions only when the transaction is confined within the 
borders of a single State and has no effect on interstate commerce. 

Under the other alternative, the acquiring company may buy the 
stock first. Then, if the Commission takes action against the acquisi- 
tion, the company may follow this purchase with the acquisition of 
assets before the Commission can enter its order of divestiture. This 
route of avoidance is important only in those relatively few cases in 

* Specifically, sec. 7 provides : 

"That no corporation engaged in commerce shall acquire, directly or indirectly, the 
whole or any part of the stock or other share capital of another corporation engaged also 
in commerce, where the effect of such acquisition may be to substantially lessen competition 
between the corporation whose stock is so acquired and the corporation making the acquisi- 
tion, or to restrain such commerce in any section or community, or tend to create a 
monopoly of any line of commerce. 

"No corporation shall acquire, directly or indirectly, the whole or any part of the stock 
or other share capital of two or more corporations engaged in commerce where the effect 
of such acquisitions, or the use of such stock by the voting or granting of proxies or other- 
wise, may be to substantially lessen competition between such corporations, or any of them, 
whose stock or other share capital is so acquired, or restrain such commerce in any section 
or community or tend to create a monopoly of any line of commerce." 

Sec. 11 provides, in substance, that if after a hearing the Federal Trade Commission finds 
that sec. 7 has been violated, the Commission shall issue a cease and desist order and direct 
the divestment of the stock held. 



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2 REPORT OF FEDERAL TRADE COMMISSION 

wHch acquisitions of assets are not feasible unless the stock can be 
purchased first; and it is only in connection with this second route 
that legal controversy has arisen. 

The question may be asked why Congress did not foresee these 
potential defects in the law when it originally passed the Clayton 
Act in 1914 The answer is to be found in the nature of the great 
consolidation movement of 1897-1905, which formed the economic 
background behind the passage of the Clayton Act. It is a historical 
fact that during this period, which witnessed the birth of such huge 
corporations as the United States Steel Corp., most mergers were 
effected through the purchase of stock. This predominance of stock 
acquisitions was based on solid economic reasons. In the arst place, 
it is much easier to purchase stock than assets. This is especially 
true in the case of holding companies, which mushroomed during this 
early movement, since the holding company can readily exchange some 
of its shares for the stock of the company to be absorbed. In the 
second place, stock acquisitions are peculiarly suitable in any era 
which is characterized by the flotation of enormous amounts of watered 
stock During the great "era of consolidation," ambitious promoters 
frequently capitalized the new combines at substantially more than 
their intrinsic worth and used the watered stock to buy off the owners 
of the separate companies. The greater the amount of watered stock, 
the easier it was to absorb companies through the means of stock 

That acquisitions of stock were, indeed, the customary and prevail- 
ing method of absorbing competitors was forcibly brought out by 
Justice Harlan F. Stone, who, in a dissenting opinion mvo ving this 
statute, observed that corporate mergers were "commonly effected 
through stock acquisitions, that "only in rare instances would a 
mer.^er be successful without advance acquisition of working stock 
control, that such control was "the normal first step toward consolida-, 
tion," that it was by that process that most consolidations had been 
brought about, that this was "the first and usual step" and that the 
statute therefore reached the evil of corporate mergers in its most 
usual form by forbidding the first step." ^ Although industry, partly 
because of this very statute, no longer relies as heavily on stock acquisi- 
tions, Justice Stone's opinion was an accurate reflection of the business 
practices prevailing at that time. _ 

The plain fact of the matter is that Congress simply did not fore- 
see-nor could it reasonably be expected to foresee-the oophole 
implicit in the possibility of acquisitions of assets. It took action 
against the customary and prevalent form of combination. Its intent 

» 291 U. S., 587, 600, 601. 



THE MERGER MOVEMENT 3 

was quite clear. It wanted to stop the growth of monopoly. At the 
time, most members of Congi-ess were convinced that, as a result of 
the decision of the Supreme Court in the Northern Securities case 
(1904) and the Standard Oil and American Tobacco dissolution suits 
(1911), the Government already had adequate powers under the 
Sherman Act to dissolve existing monopolies. But Congress wanted 
to go one step further and prevent the growth of monopoly— to nip 
it in the bud. In a report dated July 22, 1914, which accompanied 
the Clayton Act, the Senate Judiciary Committee said : 

Broadly stated, the bill, in its treatment of unlawful restraints and monopolies, 
seeks to prohibit and make unlawful certain trade practices which, as a rule, 
singly and in themselves, are not covered by the Act of July 2, 1890 [the Sherman 
Act] or other existing antitrust acts and thus, by making these practices illegal, 
to arrest the creation of trusts, conspiracies, and monopolies in their indpiency 
und before consummation.* 

This intent to stop the growth of monopoly is also evident from the 
congressional debates on the bill. Thus, Senator Walsh of Montana 
stated on the floor of the Senate: "It was intended [in this bill] 
to reach the practices that were not the practices of things that have 
developed into trusts and monopolies, but were practices of trade, 
which, z'/ persevered in and continued and developed^ would eventually 
result in the creation of a monopoly or trusty * / 

Shortly after World War I, the Supreme Court itself gave ex- 
pression to this point of view by referring to the "unsatisfactory re- 
sults" of dissolving combinations under the Sherman Act, "so far as 
the purpose to maintain free competition was concerned," and in that 
connection said^that "the Clayton Act sought to reach the agreements 
embraced in its^iere in their incipiency." It also said that "the 
Clayton Act, as its title and the history of its enactment shows, was 
intended to supplement the purpose and effect of other antitrust 
legislation, principally the Sherman Act of 1890." « 

But the original intent of Congress was one thing and the present 
status of the law is quite another. As already noted, there has never 
been any doubt that the Commission lacks authority to take action 
against acquisitions of assets which do not involve any purchase of 
stock. But there has been an important area of controversy concerning 
those acquisitions of stock which are followed by purchases of assets. 
In the middle twenties, the Commission took action against a number 
of acquisitions of this type. In a decision which was handed down 
in 1926, the Supreme Court (with Justices Brandeis, Taft, Hohnes, 
a nd Stone d issenting) held, in effect, that if the acquired stock is used 

» Senate Committee on the Judiciary, S. Kept. No. 695, 63(1 Cong., 2d sess., July 22. 1914 
to accompany H. R. 15657, p. 1. [Italics added.] ' ^ ' 

* 51 Congressional Record, p. 15820. [Italics added.] 
Standard Fashion Co. v. Magrane-Houaton Co. (258 U. S. 356). 






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4 REPORT OF FEDERAL TRADE COMMISSION 

to effect an absorption of the assets lefore the Commission can file its 
complaint, the Commission cannot order a divestiture of the assets.® 

This phase of the situation was summarized by the Commission in 
the final report of its chain store investigation in December 1934 as 
follows : 

In a number of instances the fact that the section has no application to physicjal 
assets has led corporations to acquire stock in apparent violation of the section, 
vote the stock so as to accomplish merger of assets, and then claim they wt^re 
entitled to retain the fruits of their unlawful stock transactions. 

The Commission instituted proceedings in three such cases and in the lo\^'er 
Federal courts succeeded in maintaining the theory in two of the cases that if 
the original stock acquisitions were unlawful any subsequent, ancillary acquisi- 
tions of the assets were also unlawful and might be reached by the Commission's 
order. When these three cases were taken to the Supreme Court they were 
argued and decided as one in 1926. In one case it happened that the corporation 
had not voted the stock so as to acquire the assets when the Commission filed its 
complaint. Under those circumstances the power of the Commission was sus- 
tained to order such divestiture of the stock as would prevent merger of the 
assets, the court stating that "the purpose which the lawmakers entertained 
might be wholly defeated if the stock could be used for securing the competitor's 
property" {Federal Trade Commission v. Western Meat Co., 272 U. S. 554). 

In the other two cases it happened that the stock acquired was used to complete 
merger of the assets before the Commission filed its complaint. The court there- 
upon held, with four justices dissenting, that it was beyond the power of the 
Commission to order divestiture of the physical properties {Thatcher Mfg. Co. v. 
Federal Trade Commission, and Stcift & Co. v. Federal Trade Commission, 272 

U S. 554). 

Since there is necessarily a lapse of time between the institution of the Com- 
mission's preliminary inquiry and its issuance of formal complant, offending 
corporations may readily use this time to acquire the physical assets of companies 
whose stock they have previously acquired in violation of law. As the Commission 
pointed out in its 1927 annual report, the effectiveness of the section to fulfill 
the purpose of Congress was materially lessened by these decisions. Subsequent 
decisions have further limited the scope of section 7. 

The principal "subsequent decision" to which the annual report re- 
ferred was the decision by the Supreme Court in the case of Arfiym- 
Hart and Hegenmn Electric Go. v. Federal Trade Commission^ decicled 
in March 1934. In that case the Commission had filed its complaint 
while the stock was in the hands of an acquiring holding company 
lefore it had been used to effect a merger of the physical assets of the 
two competing corporations. But while the complaint was pending, 
the holding company caused two new holding companies to be created, 
transferred the stock of one competing corporation to one of them 
and the stock of the other competing corporation to the other holding 
company, and then brought about a merger of the physical assets of the ^ 

* Federal Trade Commission v. Western Meat Co.; Thatcher Mfg. Co. v. Federal Trade 
Commission; Swift d Co. v. Federal Trade Commission (272 U. S. 554; 1926). 



THE MERGER MOVEMENT 5 

twb companies. The Supreme Court, with four Justices dissenting 
(Justices Brandeis, Taft, Holmes, and Stone), held that the Com- 
mission's power was limited strictly to ordering a divestiture of the 
stock originally acquired, and that, in effect the Commission had no 
power to order a divestiture of assets, even though it had issued its 
complaint, but not concluded its case, before the merger of assets had 
been effected. 

The majority opinion in the Arrow-Hart and liegeman case con- 
ceded that the stock "had been acquired contrary to the Act," but 
stressed that it was no longer owned by the company when the Com- 
mission made its order. The four minority Justices rejected "the con- 
tention that an offender against the Clayton Act, properly brought 
before the Commission and subject to its orders, can evade its authority 
and defeat the statute by taking refuge behind a cleverly erected 
screen of corporate dummies." ^ 

With this decision the Commission practically gave up hope of 
achieving effective results under the existing law. In its annual reportT 
of 1934 the Commission characterized the act as a "virtual nullity" 
and stated that it was an "easy matter" for corporations to avoid the 
original intent of the act. 

This has been proved time and time again in cases where the Com- 
mission has moved against acquisitions of stock only to find that such 
acquisitions were quickly followed by purchases of assets. For ex- 
ample, in 1945 the Commission proceeded against P. Ballantine & 
Sons for buying the stock of an allegedly competing firm in Newark, 
N. J. But while hearings were in process, the counsel for the respond- 
ent announced that his firm had just acquired the assets of the other 
firm. Consequently, the Commission had no alternative but to dismiss 
the complaint. 

Again, in 1946, the Commission proceeded against the Consolidated 
Grocers Corp. Through a number of stock acquisitions in competing 
corporations, that company had become the largest wholesale grocery 
in the country, with assets of $20,000,000 and annual sales of $100,- 
000,000. It occupied an allegedly dominant position in the wholesale 
grocery trade in numerous important trade areas, including Chicago, 
Baltimore, and Canton, Ohio. The Commission issued its complaint 
m 1946, charging a violation of section 7. Again, while the case was 
bemg tried, the respondent corporation took title to the assets and 
dissolved the subsidiary corporations whose stock it had acquired. 
And, again, the Commission had no alternative but to dismiss the case, 
which it did in February 1947. It is this type of situation to whichj 
the Commi ssion refers, when it states that attempting to enforce sec- 

^291 U. S. 587, 599, 608. 



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REPORT OF FEDERAL TRADE COMMISSION 




tion 7 of the Clayton Act is like "chasing a vanishing will-o'-the- 
wisp." 

Even if there should be a reversal of these 25-year-old decisions, 
the Commission could take action only against those asset acquisitions 
which were preceded by stock acquisitions. The possible reversal of 
the decisions would in no way give the Commission the power to pre- 
vent those acquisitions of assets which do not involve the transfer of 
stock. It has never been contended that the Commission, under any 
possible construction of section 7, has the power to prevent this latter 
type of acquisition. Yet, today, a sset acquis itions are more im- 
portant than stock acquisitions, constituting nearly 60 percent of all 
industrial acquisitions? Moreover, with any reversal of the old 
decisions, this proportion would undoubtedly rise to 90 percent or 
thereabouts. Such a conclusion would seem to be indicated by the very 
ease with which acquisitions of assets can be made. Only in a relatively 
small number of cases, amounting to less than 10 percent of the total, 
is it absolutely essential, because of the size and complexity of the 
merger, to buy up the stock before the assets are acquired.® Thus it 
can be expected that if the decisions were reversed, business would 
stop making stock acquisitions — many of which might be held to be 
illegal — and rely almost exclusively on asset acquisitions not involving 
stock— all of which would remain perfectly legal under any decision 
of the Court. In short, to rely on the Court in this matter is merely 
to substitute what might be termed the "completely-by-assets" loop- 
hole for the "stock-first, assets-later" loophope. Such a substitution 
of loopholes can hardly be regarded as an adequate remedy for this 
outstanding defect in the law. 

The apparent significance of section 7 has also been affected by a 
judicial interpretation of the test of competition therein. Under tliis 
interpretation, the language in the Clayton Act, which appears to 
make the legality of acquisitions depend upon the effect on com- 
petition between the acquiring and acquired companies, has come to 
have the same meaning as the language in the Sherman Act in which 
the legality depends upon the effect on competition generally. 

Under the Sherman Act, an acquisition is unlawful if it creates a 
monopoly or constitutes an attempt to monopolize. Imminent monop- 
oly may appear when one large concern acquires another, but it is 
unlikely to be perceived in a small acquisition by a large enterprise. 

'During the period 1939-44, the Federal Trade Commission found that asset acquisi- 
tions represented 58 percent of the total number of all industrial acquisitions. 

» The Department of Justice made a fairly close analysis of most of the mergers and 
acquisitions which took place in manufacturing industries during 1946-47 ; out of the sev- 
eral hundred mergers examined, it found that in less than 10 percent of the cases was it 
essential for the acquiring company to buy the stock as a necessary step in securing the 
assets. 



THE MERGER MOVEMENT 7 

As a large concern grows through a series of such small acquisitions, 
Its accretions of power are individually so minute as to make it diffi- 
cult to use the Sherman Act test against them. At best, a Sherman 
Act case can be mstituted only after a long course of conduct has made 
the goal of monopoly clearly apparent. 

Where several large enterprises are extending their power by suc- 
cessive small acquisitions, the cumulative eflfect of their purchases may 
be to convert an industry from one of intense competition among 
many enterprises to one in which three or four large concerns pro- 
duce the entire supply. This latter pattern (which economists call 
oligopoly) IS likely to be characterized by avoidance of price compe- 
tition and by respect on the part of each concern for the vested in- 
terests of Its rivals. Nevertheless, in this transition it is improbable 
that the acquisitions will supply the basis for a Sherman Act casa 
against any of the large enterprises. 

Section 7 of the Clayton Act apparently provides an alternative 
means for coping with such problems where the method of acquisition 
is the purchase of stock. Under this section an acquisition is unlaw- 
±ul not only when it restricts commerce or tends to create a monopoly 
but also where its effect may be "to substantially lessen competition 
between the corporation whose stock is so acquired and the corpora- 
tion making the acquisition," where, if the stock of two or more cor- 
porations is acquired, the effect may be "to substantially lessen com- 
petition between such corporations or any of them." Even acquisi- 
tions of relatively small concerns by relatively large ones ar^ likely to 
have the effect of limiting competition between the concerns directly 
involved in the purchase. Thus the application of this test would be 
capable of checkmg the cumulative concentration of economic power 
where concentration takes place by means of acquisitions which are 
individually small. The courts, however, have so interpreted this 
language as to prevent it from being used to outlaw acquisitions where 
tJie ettect on competition generally is not substantial »» 

The full significance of this interpretation has not become apparent 
because of a number of factors, including : (1) the small number of 
cases to which it has been applied, and (2) the far greater importance 
of the assets or stock question as the critical issue involved in section 7. 

IMPORTANCE OF THE AMENDMENT TO ANTITRUST POLICY 

There are, of course, many underlying reasons for the passage of 
some appropriate act which will close the loophole that permits cor- 
porations to buy the assets of competitors. As the report of the House 
I Judiciaiy Committee states, "The history of legislation previously 

» International Shoe Co. v. Federal Trade Oommiealon (291 u. S. 234). 



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adopted to prevent monopoly, the great increase in recent years of 
competition-destroying mergers, the damage to small business, the 
blighting of opportunity for our young people — all cry out for t.he 
enactment of legislation to stop the rising tide of monopoly." " But 
of all of these reasons, fundamental as they are, none is more important 
than the effect of the loophole on existing antitrust policy. Anything 
which seriously weakens the antitrust laws imperils the free-enter- 
prise system. And, today, there is no greater internal threat to the 
antitrust laws and to the maintenance of the competitive system tb an 
jthis gap in the law which permits corporations to do by mergers and 
(acquisitions that which they are specifically prohibited from doing 
as independent concerns. 

The antitrust laws (the Sherman Act and the Federal Trade Com- 
mission Act) condemn attempts to control the market by means of 
mutual understanding or agreement among competitors; but if the 
same objective is achieved through the purchase of physical fvoperty^ 
it is lawful in the absence of monopoly, and the antitrust agencies are 
powerless to act. The existence of the loophole thus places a premium 
upon the attainment of monopolistic ends by the completely final 
method of consolidation, as against the more vulnerable method of 
conspiracies among independent firms. In other words, the weal5:er, 
less effective, cooperative methods of eliminating competition are pro- 
hibited, but the permanent and more effective method of consolidation 
under a single management is permissible. Moreover, the more 
effective is the enforcement of the law against collusion among com- 
petitors, the greater is the incentive to achieve the same ends through 
purchase, consolidation and merger. 

A few examples will serve to illustrate the way in which the exist- 
ence of the loophole provides an escape from the present law and 
seriously weakens the Nation's entire antitrust policy. Of course, 
the desire to evade "the long arm of the law" against conspiraciies 
may have been only one of the motives behind these mergers — or, 
indeed may have been wholly absent — ^but the fact remains that the 
effect of achieving through mergers that which has been specifically 
forbidden by collusion, is the same, regardless of motives. In a 
recent address before the sixtieth annual convention of the American 
Economic Association, former Assistant Attorney General Wendell 
Berge cited the famous Addyston Pipe and Steel case ^* as a classic 
example of the way in which the antitrust laws can be evaded through 
mergers and consolidations. That case, decided in 1899, held illegal 
a conspiracy among six companies to enhance prices by eliminating 

«80th Cong., Ist sess., House of Representatives, Report No. 596, Amending sees. 7 
and 11 of the Clayton Act, June 17, 1947. 

^Addyston Pipe and Steel Co. v. U. 8., 175 U. S. 211 (1899). 




Chart I 



CONCENTRATION OF CEMENT CAPACITY, 1937-1945 

1937 




MARQUETTE CEMENT MFft CO. 2.7%-, , — HAW KEYE PORTLAND CEMENT CO. 0. 7 % 



WABASH PORTLAND 
CEMENT CO. 0.8 % 



IDEAL CEMENT CO. 3.9%-, 
MEDUSA PORTLAND CEMENT Ca aS %-n 



1 



CONSOLIDATED OROUP 3.8 % 



UNIVERSAL ATLAS 
CEMENT CO. 
14.2% 



LEHJ6H 

PORTLAND 

CEMENT CO. 
6.6 % 



LONE STAR 
CEMENT 
CORP. 
6.6% 



Lit 



ALPHA 

LAND 
CEMENT 

CO. 

9.0% 



PENN- 

DIXIE 

CEMENT 

CORR 

4.6% 



1 



rHERMlTAGE PORTLAND CEMENT CO. 0.3 % 

rCUMBERLAND PORTLAND CEMENT CO. 0.4% 
HURON PORTLAND CEMENT CO. 2.0% 



■ II 



I 




UNIVERSAL ATLAS 

CEMENT CO. 

14.9 % 



LEHIGH 

PORTLAND 
CEMENT CO. 
12.0% 



LONE STAR 
CEMENT 
CORR 
7.0% 



ALPHA 

PORTLAND 

CEMENT 

CO. 

9.0% 



PENN- 

DIXIE 

CEMENT 

CORP. 

9.1% 



J/. 



7 



CONSOLIDATED GROUP' 3.8 % 
MEDUSA PORTLAND CEMENT CO 3.3% 

^SS'Trfnl?; pJTt*S;,?c;mrnf Ca**''''"^ ^•'"•"* ^°-^'«"°' '^°""*°'" ^^^''^'"^ ^••"•"^ C*'- 

-/ Incorporoted 1939-, does not include Yosemite (acquired 1944) ond Pacific Cooet (acquired 1947) 
which would ro>se Permanente s notional percentage to 2.S * 

^ Although the Cumberland and Herntitage firms were not formolly acquired until 1947, they ore 
included as under Marquette in 1943, owing fo inter -compony stock interests which preveileo of 
that time. 

795355 O - 48 (Face p. 9) 



1945 



T 



ALL OTHER COMPANIES 
43.3 % 



ALL OTHER COMPANIES 
37.6% 



HURON PORTLAND CEMENT CO. 1.6 % 



•-PERMANENTE CEMENT CO. 2.1% 
•-MARQUETTE CEMENT MFO. CO.%.2 % 

t-IDEAL CEMENT CO. 3.4% 



THE MERGER MOVEMENT 



9 






i 



competitive bidding in the sale of cast iron pipe. However, the 
defendants, who had thus been enjoined from carrying out their 
price-fixmg conspiracy, subsequently merged into what is now the 
largest manufacturer and distributor of cast iron pressure pipe in the 
United States. 

Obviously, competition was completely eliminated between the 
former conspirators as a result of the consolidation. What had been 
explicitly declared to be illegal under separate ownership thus became 
fully permissible under consolidated ownership. Only recently the 
Department of Justice filed a civil suit against the company, now 
known as United States Pipe and Foundry Co., and four other com- 
panies, alleging both restraint of trade and monopoly." 

More recent examples of the use of the merger-escape loophole are 
provided by such industries as cement, salt, white lead, fire extin- 
guishers, and book paper. 

Cement industry.— C\ima.xmg an extensive study of the cement in- 
dustry mcluding a report to Congress on its pricing systems, the 
Federal Trade Commission in 1937 issued a complaint » against nearly 
all members of the industry, specifically against those which belonged 
to the Cement Institute, a trade association. After voluminous tes- 
timony, the Commission, in 1943, issued a cease and desist order "> 
which, among other things, forbade the respondent companies from 
quoting or selling" cement according to a multiple basing-point for- 
mula." Finally, on April 26, 1948, the Supreme Court, in a sweeping 
affirmation of the Commission's findings and order, ruled that the 
cement industry's long-established basing point system, resulting in 
Identical delivered prices at any given destination, is a collusive 
price-faxing device which violates both the Federal Trade Commis- 
sion Act and the Clayton Antitrust Act. The Court agreed with the 
Commission that this pricing system not only constitutes an "unfair 
method of competition," but also involves unlawful price discrim- 
ination. 

When the Commission's complaint was issued in 1937, there existed 
a relatively high degree of concentration in the industry (see chart 1) 
with the 5 largest companies accounting for 39 percent of the Nation's 
cement producing capacity, and the 10 largest, 55 percent. Princi- 
pally as a result of the mergers which have taken place since the 
Commi^ion entered its order, the degree of concentration has been 
increased s ignificantly. By 1945 the 5 largest companies controlled 

filed^'dcfoblr 23^9^47" *^ Z'""^'''*' ^'" '""'- District of New Jersey. CivU Action 10772. 
w ^^^^^^ 3167 ; complaint dated July 2, 1937. 

16 r?.T°* ^*^st"«te, et al., order dated July 17, 1943. 
loid., p. 4. 



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REPORT OF FEDERAL TRADE COMMISSION 



about 44 percent and the 10 largest over 60 percent of the industi-y^s 
capacity. Moreover, because of the regional character of cement 
marketing (which results from the importance of freight in the de- 
livered cost), the increase in concentration has been considerably 
greater in a number of important regions. 

An outstanding acquisition occurred early in 1945, when Universal- 
Atlas Cement Co. (a subsidiary of United States Steel), the country's 
largest cement producer, acquired Wabash Portland Cement Co. of 
Osborne, Ohio. Chiefly as a result of this acquisition, Universal- 
Atlas increased its percentage of control of the industry from 14.2- 
percent in 1937 to 14.9 percent in 1947. But of even greater im- 
portance from a marketing point of view was the fact that Universal- 
Atlas secured thereby 16 percent of the important Ohio districjtV 
capacity. 

The Marquette Cement Manufacturing Co., which was also a re- 
spondent to the FTC complaint, has acquired three other respondents; — 
Hawkeye Cement Co., Des Moines, Iowa (1940) ; Hermitage Port- 
land Cement Co., Nashville, Tenn. (1947) ; and Cumberland Portland 
Cement Co., Cowan, Tenn. (1947). Largely as a result of these 
acquisitions, Marquette's position in the industry has increased from 
2.7 percent of the industry's capacity in 1937 to approximately 4.2 
percent in 1947. Through these acquisitions, it has secured o\er 
21 percent of the Iowa district's capacity and 23 percent of the Ten- 
nessee district's capacity .^^ 

Two other respondents (not shown on the chart because they wera 
not among the largest 10 producers) , Pacific Portland Cement Co.,. 
liedwood Harbor, Calif., and Beaver Hill Portland Cement Co., Gold 
Mill, Oreg., merged in October 1940. One other acquisition not 
shown occurred in 1940 when Ideal Cement Co., Denver, Colo., ac- 
quired Gulf Portland Cement Co., Houston, Tex. Gulf Portland 
Cement Co. had not been named as a respondent. Although Ideal 
Cement Co. itself had not been named, several of its subsidiaries were 
respondents. 

The action by the Supreme Court in upholding the Commission'^ 
order against the cement industry will obviously be nullified insofar 
as the relationships between the acquired and acquiring firms are con- 
cerned, since there will no longer be any occasion for the acquir(5d 

"" In addition, a new cement producer, Permanente Cement Co., organized in 1939 by tiie 
Kaiser interests, has acquired two companies which were respondents to the Commission's 
complaint. These were Yosemite Portland Cement Corp., Merced, Calif. (1944) and Pacific 
Coast Cement Co., Seattle, Wash. (1947). In the case of Yosemite, the plant was dis- 
mantled and the machinery resold. The Pacific Coast Cement Co., however, now operate* 
as a Permanente unit. Partly as a result of these acquisitions, Permanente is now tie- 
tenth largest producer in the country and the largest in the west coast area. 



THE MERGER MOVEMENT li 

firms to conspire with their new owners in order in r.nf fi. u • 

in industry. pt»vveriui incentive for mergers 

r>^^t'l^:ZTnZTT.l:rr:u:ZT^^ '"'"'^"^' •'^'^ "^ "-e Govern. 

Were industry forced tTZZllZlTt^T- '^""^""''"'-^ * * *• 
plants located near consuming mTtefs won d ™ ^°^ '""°' '^''*'" "' ^'"''°^' 
located in more distant places to inrtn!. ^l ^ ^'■"" advantage over tbose 
involve heavy transpotratioreol One C T^ f '^"^'^ ^'^ ''"'^^' ^"^ «« 
-.-hose Plants are not idery located ° to r^T ^^ *''" P'"'""'" '"' '^"'"'^^''^ 
larger volume of production leTr Us customers 'r^*^"' '" '' '" ""''' "^ 
most practical and economical way to achiete This » '"'" """' ^'"^"'^ '""^ 

firms will Vn / f ^*"''* conspiracies among individual 

ways: Either repeal or otherwtrweak:' the aSusTr"' °^P°"' 
conspiracies, or phig the loooholp rf^^f '^ 'f « f "'itrust laws against 

efTective barrier Ig^rSJ^^^^tZS 5^^" ^'\' T^"^^ '' ^"^ 
as wp]] ao ^fk u • ^^^«rger activity. The Journal of Commercp 

Kl: r° thtZSTad;^^^^^^^^ °^ "p^'^^^ -~"^2r 

the latter. ' Commission continues to recommend 

applied and administered with ereat: o,r„ hV x^° '°^'^" ™»" enterprise. Unless 

••xrr/ne'n.?rsr/,'^^~ - ~ -" ^^ ™- " ^et. 
Btudj. to the (ar-reaching ImpSons of th/T ""'""' ^"^ '■"■"edlate and thorough 
Insmute case, to see what changes In the antitrn?/r' ''""r^ "''''""^ ^ ""^ OevT, 
pressure for relocation and mergers within nrtn!* T. ""^ "»«=■•'>"« to limit the added 
.^mentous r„„ng of our -^^^' ^u^^n^J:^^,^^^ ^^^^Z:-^^^ 

lnstfrrs'hTa;X?o'°hVSgt°:I rr '° "^'""■' " "'""-«« ^^ ""..rust ,aws 

Of the united States%t.el Corp 1,:;,^ afte?th™!f''' "' '""" «• «'"«• *"™" 
decision against the basing point system In thl .' Supreme Court handed down its 

April 30 stated : "If the decision TT = ^ """"■* industry. The New York Times nf 
PHcing method of the cem^T Tnd"us ry' shaTrpf^t t°H ""? ^""'"^ «'"- agataTthe' 
industnes. marketing procedures in all lines of Sn.,= m, 'k**' """""'^ ■""' "» »«■« 
should receive the attention of Cong ess ■IrvtogroL'',^ *" '" "'"'' """ "■« ""ter 
Steel Corp., declared yesterday " On fhi „ ! ^^' <=''a'™an of the United States 

"porting on Mr. Old's stafement s"id -Cw^'' "tt '"^ ''<"•'' """^'^^ »' clmerr 
Court basing point decision, Mr Olds^ii th„t nT"! '"' '^''""^ ""P"" <" ">" SupS 
«".« to seek remedial -egialatiororr.ercljrtr'^urnfr^o'u^i'.tV- »"-"i^yes-r 
• 85355— 48— ——2 



tl 



'I'r 



I 



p 



\\ 




12 



REPORT OF FEDERAL TRADE COMMISSION 



SalL—Another example of a merger of conspirators is provided by 
the salt industry. In September 1^40 tiie Federal 1— de Commission 
issued a complaint against salt producers and their organization, 
the Salt Producers Association. In November of the following year, 
the Commission ordered the association and its members to cease and 
desist from operating a conspiracy to fix prices, regulate production, 
exchange discount information, etc.^® 

Economic concentration in this industry has for years been rela- 
tively high. In 1935 the eight leading producers operated 31.7 percent 
of the mines and wells producing salt, employed 63 percent of the 
wage earners, and produced 61.6 percent of the total value of the 
industry's products.^« As a result of recent acquisitions and mergers, 
the level of concentration in the industry has been materially increased. 
Subsequent to the Commission's complaint, the followmg known 
consolidations took place in the industry ; 



Acquiring company 



Morton Salt Co 

Do - 

General Foods Corp. ». 



Company acquired 



Worcester Salt Co., New York, N. 
Union Salt Co., Cleveland, Ohio- 
Colonial Salt Co., Akron, Ohio.— 



Date of acqui- 
sition 



March 1943. 
May 1944. 
August 1945. 



» Not a respondent in FTC Docket No. 4320. 

Both of the two largest producers in the industry— International 
Salt Co. and Morton Salt Co. (each operating principally in the 
northeast and Kansas and Louisiana regions, where most of the 
United States salt is produced) ^^ have gradually increased their share 
of control over the industry. Although International has made nc» 
known acquisitions since 1922, Morton has been especially active since 
1925 In the far west, Leslie Salt Co., formed in 1936, brought four 
companies under its control and in 1940 added another. In 1945 Leslie 
rated fourth among the United States producers of dry salt.^^ 

White-lead industry.— In November 1944 the Commission issued a 
complaint against the members of the white-lead industry, charging 
price-fixing, monopoly, and discrimination. The white-lead industry 
is made up of two divisions— white lead-in-oil and dry white carbonate 
lead. According to the allegations the leading producers m each of 

« Salt Producers Association et al., Docket 4320. 

«> TNEC Monograph No. 27, p. 573. „k^„* qo 

« The States of Kansas, Louisiana, Michigan. New York, and Ohio produced about 82 
percent of the United States total in 1945. See Minerals Yearbook. 1945. 

« Hearines on H R. 2357 before the House Subcommittee No. 3, 79th Cong., Ist sess., 
seria^Nrs pp 238-43. Leslie Salt Co. was not a respondent in FTC Docket 4320. 



THE MERGER MOVEMENT 13 

these two branches, together with their approximate share of the 
industry's production before the war, are listed below : ^3 

White lead-in-oil : Percent 

1. National Lead Co. (successor to National Lead Trust) 60 

2. Eagle-Picher Co 20 

3. International Smelting & Refining (subsidiary of Anaconda Copper 

Co. ) 3 5 

4. The Glidden Co ^I (t) 

5. The Sherwin-Williams Co (») 

Dry white carbonate lead : 

1. National Lead Co 50 

2. International Smelting & Refining Co.' 14 

3. Eagle-Picher Co 12 

4. The Glidden Co " __' (i^ 

5. The Sherwin-Williams Co : (i) 

» Produce only small percentage of white lead for the open market, using a great deal 
of their production for manufacture of ready-mixed paint. 

» Produce at East Chicago, 111., plant by a unique process of electrolysis. 

During the summer of 1946, Eagle-Picher acquired the assets of 
International used in smelting and refining lead and producing white 
lead and white lead-in-oil at East Chicago. The effect of the acquisi- 
tion upon the alleged distribution of production was to increase the 
size of the second largest producer and eliminate altogether the third 
largest leaving two concerns accounting for between 76 and 85 percent 
of the production and sale of both white lead and white lead-in-oil. 

While the above are among the most recent cases of consolidations 
among respondents to FTC orders, similar examples can be found in 
numerous other industries. In the fire extinguisher industry, for 
instance, an order to cease and desist from conspiring to fix prices, to 
bid identically, etc., was issued in 1935 by the FTC against a number 
of companies.2* Among those companies cited were the Fyr-Fyter 
Co. and the Buffalo Fire Appliance Corp. In 1946 the Fyr-Fyter 
Co. purchased the entire capital stock of the Buffalo Fire Appliance 
Corp. 

Another example occurred in the book paper industry. An order 
to cease and desist from collectively fixing prices, using a zone price 
system, etc., was directed, in 1945, against the more important manu- 
facturers of book paper in the United States.^^ Among the respondents 
were the Columbian Paper Co. and the Mead Corp., the latter being 
one of the largest firms in the industry. One year after the issuance 

" These figures are controverted issues in Docket 5253 which is pending for decision 
and therefore their use as allegations should not indicate any prejudgment of the truth or 
falsity of the alleged facts by the Commission. 

»* Docket 2352. 

*» Allied Paper Mills et al.. Docket 3760. 



4i 



i\ 






14 



REPORT or FEDERAL TRADE COMMISSION 



1 




of the order, the Mead Corp. acquired the entire capital stock of th& 
Columbian Co. Previously, in 1938, Mead had acquired control of 
Dill & Collins, Inc., another respondent to the FTC order. 

These various examples — and many more could be cited — underline 
the fundamental principle that any antitrust policy, to be effective, 
must prohibit the achievement of monopolistic ends, regardless of 
whether they are attained by collusive agreement among independent 
firms or by consolidation, acquisition and merger. To block off one 
of these two roads to monopoly, while leaving the other open, merely 
increases the traffic on the latter. 

OBJECTIONS TO THE AMENDMENT 

In the course of hearings before the House and Senate Judiciary 
Committees a number of objections were raised to the amendment 
of the Clayton Act. In the majority report on the bill, by Repre- 
sentative John Gwynne of Iowa, the House Judiciary Committer 
summarized these objections and presented a brief analysis of each 
of them. Because of the fact that some, if not all, of these objections 
are invariably raised whenever this amendment is proposed, that part 
of the report of the House Judiciary Committee containing the 
analysis of these objections is presented below : ^^ 

"V. Analysis of Opposition to H. R. 3736 

"Opponents of this measure have urged the following objections : 

"1. It would prevent a corporation in failing or bankrupt condition 
from selling its assets to its most likely buyer — to wit, a competitor. 

"2. It would prohibit small corporations from merging in order U> 
ffer greater competition to large companies. 

"3. It would increase bureaucratic control over all business. 

"4. Recent decisions of the Supreme Court have rendered this pro- 
posed amendment unnecessary. 



u, 



OBJECTION NO. 1 

"The argument that a corporation in bankrupt or failing condition 
might not be allowed to sell to a competitor has already been disposed 
of by the courts. It is well settled that the Clayton Act does not apply 
in bankruptcy or receivership cases. In the case of International' 
IShoe Co, V. Federal Trade Commission (280 U. S. 290) the Supreme 
Court went much further, as is shown by the following excerpt from 
the decision : 

♦ * ♦ a corporation with resources so depleted and the prospect of rehabilita- 
tion so remote that it faced the grave probability of a business failure with, 



" 80th Cong., Ist sess,, Report to Accompany H. R. 3736, pp. 5-7. 



THE MERGER MOVEMENT 



15 



resulting loss to its stockholders and injury to the communities where its plants 
were operated, we hold that the purchase of its capital stock by a competitor 

(there being no other prospective purchaser), not with a purpose to lessen 
<?ompetition, but to facilitate the accumulated business of the purchaser and with 
the effect of mitigating seriously injurious consequences otherwise probable, is 
not in contemplation of law prejudicial to the public, and does not substantially 

(303) lessen competition or restrain commerce within the intent of the Clayton 
Act. To regard such a transaction as a violation of law, as this court suggested 
In Vnited, States v. U. 8. Steel Corp. (2,51 U. S. 417, 446-447), would 'seem a 
•distempered view of purchase and result.' See also Press Association v. United 
States (245 Fed. 91, 93-94) (Id. pp. 302-303). 



"OBJECTION NO. 2 

"The objection that the suggested amendment would prohibit small 
companies from merging has strangely enough been put forward by 
representatives of big business. This would seem almost like 'Greeks 
bearing gifts.' 

'^Incidentally, several small business associations interested in the 
welfare of small business and the maintenance of free enterprise testi- 
fied very vigorously in support of this bill. No small business group 
appeared against it. 

"There is no real basis for this objection. 

"In the first place, the present language of section 7 as it relates to 
mergers by sale of stock is more restrictive than the language in the 
amended bill. Yet no case has been found where a small corporation 
had any difficulty or was criticized by the Federal Trade Commission 
for selling its business by selling its stock to another small corporation. 
The small corporations have not had to avoid the present language of 
section 7 by selling their assets in place of their stock, when they 
wanted to dispose of their business. Furthermore, the evidence shows 
that it is only in large acquisitions by large corporations, which would 
have a tendency to create a monopoly, where resort is had to the device 
of purchasing assets in lieu of capital stock when a merger is planned. 
Attention is also called to the list of acquisitions beginning on page 
317 of the hearings. None of these involve small corporations selling 
to other small corporations. 

"Furthermore, the Supreme Court and the Federal courts have not 
applied the present strict language of section 7, even in cases of stock 
acquisition, so as to prevent a small corporation from selling its 
business or of merging with another small business. The Supreme 
Court has only applied the present language of section 7, even in the 
case of stock acquisitions, to large transactions which would sub- 
stantially lessen competition, or tend to create a monopoly. In the 
case of International Shoe Company v. Federal Trade Commission 
(291 U. S. 234), decided January 26, 1930, the International Shoe Co. 



111 



ii 



16 



REPORT OF FEDERAL TRADE COMMISSION 



I 



having a Nation-wide business purchased the stock of McElwain Co.^ 
a smaller shoe company also having a Nation-wide business. As to a 
part of the business of the two corporations, they were not in direct 
competition. The Federal Trade Commission sought to order a di- 
vestiture of the stock and prevent the merger. The Supreme Couit 
held that the merger was not of sufficient size or importance, even 
though there was some competition between the two corporations, to 
substantially lessen competition or to create a monopoly. The Coui t 
has this to say : 

Mere acquisition by one corporation of the stock of a competitor, even though 
it results in some lessening of competition, is not forbidden ; the act deals only 
with such acquisitions as probably will result in lessening competition to a 
substantial degree, Standard Fashion Co. v. Magrane-Houston Co. (258 U. S, 
346, 357) ; that is to say, to such a degree as will injuriously affect the public. 

"See also Federal Trade Commission v. Sinclair Co. (261 U. S. 463) • 
"The Second Circuit Court of Appeals in the case of Temple 
Anthracite Coal Co. v. Federal Trade Convmission (51 Fed. (2d) 656), 
in a case where one coal company had purchased several others in Ken- 
tucky, held that section 7 of the Clayton Act was not involved, and 
cited in addition to the Intematiorval Shoe Co. case a decision of the 
Supreme Court in the case of Standard Fashion Co. v. Magraric- 
Eomton Co. (258 U. S. 346) . This is definitely the law of the land. 

"The language in the amendment, it will be noted, follows closely 
the purpose of the Clayton Act as defined by the Supreme Court in 
the International Shoe case. 

"objection no. 3 

"The argument that this amendment would increase bureaucratic 
control over all business was more properly directed at a provision 
of H. R. 4810 of the Seventy-ninth Congress, and not included in 
H. R. 3736. That provision would have required, in certain cases, 
the making of an application to the Federal Trade Commission for 
permission to acquire the property of another corporation. No such 
requirement is made here. The present law simply lays down a course 
of conduct to be followed in the purchase of assets just as existing 
law does with respect to capital stock. 



THE MERGER MOVEMENT 



17 



(( 



OBJECTION NO. 4 



"The attention of the committee has been called to recent decisions 
of the Supreme Court, particularly the American Tobacco Company v. 
Urdted States (328 U. S. 781), decided June 10, 1946. Opponents of 
H. R. 3736 say that, under the Sherman Act as now unanimously 



interpreted by the Supreme Court, any person, firm, or corporation, 
or group of them, can be dissolved, enjoined, and punished criminally 
if it or they have the power to raise prices or exclude competition, even 
though it or they may never exercise such power. 

"If this be true. Congress, instead of amending the Clayton Act to 
cover the acquisition of assets, might well repeal that part of the law 
pertaining to capital stock. For according to the view above ex- 
pressed, both are equally unnecessary. 

"However beneficial these decisions may prove to be in the enforce- 
ment of the Sherman Act, we do not believe they solve the entire 
problem. Nor do they convince us that Congress should no longer 
rely on the Clayton Act or not make attempts to cure its obvious 
defects." 

CURRENT TREND OF THE MERGER MOVEMENT 

During the current period, 1940-47, more than 2,450 " formerly 
independent manufacturing and mining companies have disappeared 
as a result of mergers and acquisitions. It should be emphasized that 
this is a minimum estimate since it is based upon a sample drawn 
principally from reports of acquisitions of the larger corporations, as 
published in the leading financial manuals. The asset value of these 
2,450 firms amounted to $5.2 billion, or roughly 5.5 percent of the 
total of all manufacturing corporations in the country during the 
wartime year of 1943. 

In the accompanying table these acquisitions are distributed by the 
industry of the acquiring company. As will be noted, by far the 
largest number of acquisitions have been made by firms in only three! 
branches of manufacturing, namely, f ood and beverag es, textiles an^ 
apparel, and chemicals (including drugs). Together, these three 
groups accounted for 36 percent of the total number of acquisitions. 
Other industries which were particularly active were nonelectrical 
machinery, petroleum, and transportation equipment . In the aggre- 
gate, these six major-industry groups accounted for approximately 59 
percent of all the mergers and acquisitions for the entire period 
1940-47. 



Specifically, this total Is based upon reports published by Moody's Investors Service 
and Standard & Poor's Corp. financial manuals. An additional 388 cases were included 
from the issues of Textile World, 1940-47. As an indication of the narrowness of the 
coverage of the financial manuals, especially in "small-business industries," only 28 percent 
of the total acquisitions in the textile industry from 1940-47 were reported In Moody's 
and Standard & Poor's manuals. The acquisitions In all cases are limited to purchases 
of either assets or of 50 percent or more stock control. The few instances of stock acquisi- 
tions representing less than 50-percent control mentioned in the text for illustrative 
purposes are not included in the statistical series. 



'I; 



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.18 



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I • 



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REPORT OF FEDERAL TRADE COMMISSION 



Mergers and acquisitions of manufacturing ana mining concerns, ly industry, 

mO-47 



Industry of acquiring company 


Total num- 
ber of firms 
merged or 
acquired 


Percen 


Nondurable goods industries, total. 


1,084 


62.6 




Food and kindred products 


369 
270 
99 

4 

1154 

84 

28 

212 

83 

129 

157 
25 
19 
32 


17.9 
13. 1 
4.8 

.2 

7.5 

4.1 

1.4 

10.2 

4.(1 

6.2 

7 6 


Food 


Beverages 


Tobacco manufactures ^ 


Textiles and apparel... 


Paper and allied products 


Printing and publishing 


Chemicals 


Drugs and medicines 


Other chemicals 


Petroleum and coal products - " 


Rubber products _ 


1.2 

Q 


Leather products 


Miscellaneous manufacturing 


L6 




Durable goods industries, total 


803 


Vi 






Primary metals 


134 
105 
29 

107 

167 

106 

149 

27 

60 

64 


6.5 
•i 1 


Iron and steel (basic) "' 


Other primary metals " 


1 4 


Fabricated metals 


5 2 


Nonelectrical machinery 


8.1 

a 1 


Electrical machinery. " ' 


Transportation equipment 


7 9 


Professional and scientific instruments - - 


1 3 


Lumber and furniture . 


2 4 


Stone, clay, and glass products "" 


3 1 






Other, total-. 


175 


8.5 


• 


Mining 


71 
104 


3.4 

"i 1 


Nonmanufacturing 






Grand total 


12,062 


100.0 





1 Not including an additional 388 cases reported in Textile World, 1940-47, which would bring the total for 
textiles and apparel to 542 and the grand total to 2,450. 

Source: Based on actions reported by Moody's Investors Service and Standard & Poor's Corp. 

Most of the acquisitions in the current movement have taken place 
during the last 3 years. ( See chart 2. ) In this respect the present trend 
has closely followed the pattern established after World War I. Im- 
mediately at the end of both wars merger activity increased sharply, 
as can be seen in the accompanying chart. The post- World Wax I 
movement extended through 1919, 1920, and the early part of 1921, 
until it was interrupted by the postwar depression. Again in the 
middle twenties when prosperous conditions had returned, the trend 
took on new force, reaching all-time heights in 1928 and 1929. 

£In much the same manner, merger activity turned sharply upward) 
ith the end of World War II and has continued at a relatively high/ 
vel through 1947. In the final quarter of 1947, more mergers and 
acquisitions were reported than in any fourth quarter— with the sirgle 
exception of 1945 — since 1930.^8 

" It should be noted that, in order to provide a comparable series over long-run periods, 
the trends shown in chart 2 are based entirely upon acquisitions reported in the financial 
manuals, and do not include the additional cases found in Textile World. Similarly, in 
other charts covering the short-term period, 1940-47, the additional textile cases have 
been excluded in order to maintain comparability. 



J 





MERGERS AND ACQUISITIONS IN MANUFACTURING AND MINING. 


1919 — 1948 

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THE MERGER MOVEMENT 



19 



In appraising the over-all effect of mergers on economic concentra- 
tion, it must be constantly borne in mind that they tend to become / 
Gwnulative over a period of time. In other words, each year's mergers ! 
are superimposed upon a structure of economic concentration which 
has been built up over many past years. 

Mergers and acquisitions in manufacturing and mining are shown " 
on a cumulative basis in the lower part of Chart 2, covering the 29- 
year period 1919 through 1947. It will be noted that from 1919 through 
1929 more than 7,000 independent firms disappeared as a result of 
mergers and acquisitions. And by the end of 1947, the total had 
reached nearly 11,600. 

The prewar levels of concentration on which this current merger 
movement is being superimposed were carefully measured by the Tem- 
porary National Economic Committee interms of individualproduct^. 
As will readily be noted, concentration had already reached such 
extraordinarily high levels in the case of many of these individual 
products that there exists little, if any, room for further increases in 
concentration through mergers or any other means. As of 1937, the 
TNEC found that : ^ '/' ^ 

One-thii(^6f the total value of all manufactured products wa^ pro- 
duced u/nder conditions where the lea ding four producers of p^/>.K indi^ 
vid ual yroduct turned out from(7 5 ^ 100)vercent of the value of 
product. No less than 57 percent of the value of product was produced 
under conditions where the largest four producers of each product 
turned out more than half of the total. 

There were 121 major products — each with an aggregate production 
value in 1937 of more than $10 million — in which more than three- 
fourths of the output was manufactured by 4 firms. In the case of no 
less than 41 of these, output was too centralized for publication of the 
figures, owing to regulations against disclosure.^® 

The concentration ratios are generally even higher in terms of 
number of products than in terms of value. Thus, for approximately 
three-fourths of the total number of products concentration ratios 
exceeded 60 percent, about half were above 76 percent, and nearly 
one-third exceeded 85 percent.^" In other words, there was a better 
than three-to-one chance that if an individual product were picked at 
random, it would be found that only four producers turned out half 
of the nation's production of that item. The chances were one-to-one 

** In many cases only a very few companies actually participated in the production of 
these products. For example, there were only four producers manufacturing inlaid lino- 
leum, and alternating current watt-hour meters. Only five companies manufactured steel 
rails, car and locomotive wheels,, lead oxide, and beer cans. Si x companie s were responsible 
^or the country's outpu t of corn and other syru ps, and roUed'and forged axles, and other 
products: — . — . ' 

'» TNEC Monograph No. 27, The Structure of Industry, pp. 416-418. 



t 

J 

4 
4 



II 



•^1 




20 



REPORT OF FEDERAL TRADE COMMISSION 



il 



i 



'i 



that the Big Four turned out more than 75 percent of the product, 
I and one-to-two that they turned out 85 percent or more. 

THE PROFITS-MERGER SPIRAL 

High profits and intensive merger activity have historically gone 
, hand in hand. This is true of the great consolidation movement of 
! 1897-1905, the post- World War I movement, the period of the late 

I twenties, and it is no less true at the present time. Not only do profits 
provide the financial wherewithal with which to effect mergers; but 
more than that, they exert a powerful pressure on business to expand, 
both internally by building new plant and equipment, and externally 
by absorbing existing concerns. 

As profits reach high levels, part of them are characteristically 
plowed back into corporate surpluses, which then accumulate in thie 
form of reserviors of unused working capital. In the absence of any 
government restriction, it is only to be expected that business will 
tend to seek outlets for these funds through the purchase of competi- 
tors, suppliers, distributors, or even organizations engaged in com- 
pletely unrelated lines of activity. Traditionally, this profits-mergt^r 

II spiral has been checked only by an economic collapse or by the virtual 
1/ elimination of effective competition. 

-i- From 1941 to 1944 corporate profits after taxes averaged nearly 
$10 billion, or about double the 1939 level. By 1946 they had mounted 
to $12.5 billion, or 21/2 times the prewar level. And in 1947 they soared 
to approximately $17 billion, or nearly 31/2 times the prewar level. 

These high profits led, of coui'se, to a sharp increase in funds avail- 
able for the purchase of other companies, which is reflected by the 
trend of net working capital. In 1939 all corporations in the United 
States (excluding banks and insurance companies) held $24.5 billion 
of net working capital; by 1944 the total had reached $45.6 billion; 
and at the end of September 1947 it stood at a new peak of $60.4 
billion.31 Similarly, the net working capital held by the 78 largest 
listed manufacturing coi:porations (each with total assets over $100 
million at the end of 1946) rose from $5.4 billion of net working 
capital in 1939 to $8.4 billion in 1944, and to $10.0 billion by June 30, 

1947.^2 

The economic power residing in these reservoirs of net working 
capital may readily be visualized by a comparison of the net working 
.capital held by the 78 giant manufacturing corporations with the tot al 
asset value of all manufacturing corporations which had assets of 

"Securities & Exchange Commission, Statistical Series Release No. 790, March 2, 1948, 

p. 2. 

» SEC, "Working Capital of 1,169 Registered Corporations, December 1939-June 1947, 

January 30, 1948," p. 17. 



THE MERGER MOVEMENT 



21 



less than $1 million. As of June 30, 1947, there were some 50,000 manu- 
facturing corporations of this size. The combined asset value of these 
smaller corporations, which, in number, represented more than 90 per- 
cent of all manufacturing corporations, amounted to just under $10 
billion. By way of comparison, the net working capital of the 78 
industrial giants exceeded $8 billion in 1944, and crossed the $10 billion 
line in 1947. Thus, as of the end of June 1947, the 78 giants had suffi- 
cient net working capital to buy up the assets of 90 percent of the num- 
ber of all manufacturing corporations. 

Moreover, these large corporations are in a highly liquid position. 
As of June 1947 the ratio of total current assets to total current lia- 
bilities was three to one. The cash and Government securities held by 
the 78 largest manufacturing corporations totaled more than their 
current liabilities. Thus, notwithstanding the increase in inventories 
which had occurred in recent years, these corporations would appear 
to have a substantial reserve available for the purchase of other 
companies. 

As a bare minimum, these giant corporations could conceivably use 
their free cash to purchase other companies. As of June 1937, they 
held a total of $3.1 billion in cash and an additional $2.1 billion in 
United States Government securities. And since many acquisitions 
are made without payments of cash, these figures substantially under- 
state the potential power of these large corporations to buy other 
firms. 

Of course, these comparisons are only presented for illustrative 
purposes, since it is extremely unlikely that any corporation would 
ever use all or even most of its net working capital for the purpose of 
buying up other firms. Net working capital must be used to meet a 
variety of normal business expenses, including the purchase of raw 
materials, parts, and supplies of all kinds, meeting the pay roll, etc. 
Moreover, during recent years, corporations have been drawing heav- 
ily on their net working capital for the purpose of financing various 
forms of internal expansion, that is, the building of new plant, equip- 
ment, machinery, etc. Nevertheless, there can be little doubt that 
large corporations already possess sufficient funds to support a high 
level of merger activity for some time to come. 

Whether or not business actually will use its imm^se funds for the 
purpose of buying up other firms will, of course, be influenced by many 
forces, among which is the gradual diminution in the number of indus 
tries that still constitute fertile fields for merger activity. Intensive 
merger activity can hardly be expected to take place in those industries 
which have already become so highly concentrated that there remain 
only a relatively few small competitors still available for purchase. It 



Dne 



4 



I 



i 



f'l 



i 



H 



22 



REPORT OF FEDERAL TRADE COMMISSION 



II 




is difficult, for example, to conceive of any further widespread merger 
activity taking place in such industries as steel, rubber tires, cop- 
per, glass, and many other highly concentrated fields. Even in such 
former strongholds of small business as the food and textile industries, 
the opportunities for future mergers have declined sharply as a result 
of the numerous acquisitions which have taken place therein during 
the last 3 years. 

Like Alexander the Great, the modern monopolist may have to bring 
his merger activities to a halt, owing simply to the imminent absence 
of "New Worlds to Conquer." ^^,.^^ 




MERGERS AND ECONOMIC CONCENTRATION 



As contrasted to European countries in which business combinations 
have readily taken the form of cartels and loose-knit association of 
independent businesses, such combinations in the United States have 
generally taken the form of the giant corporation, with its typical di- 
vorce between ownership and control, its tight centralization of power 
in the corporate management, its enormous financial resources, its cora- 
munity of interest with other corporate and financial groups, and its 
insatiable quest for greater and still greater economic power. 

The rise of these great corporations has resulted from two types of 
expansion — into mal and external frroj vth. The former, which is some- 
times referred to as natural growth, occurs through the building of 
new facilities or the expansion of existing properties financed out of 
retained earnings, loans, the sale of securities, or similar means. To 
the extent that such expansion takes place more rapidly in large than 
in small enterprises, economic concentration is obviously increased. 
External growth — with which this report is concerned — ^takes place 
through the combining together of existing firms by means of acqid- 
sitions, mergers, or consolidations, and through the creation of other 
types of combinations such as trusts and holding companies. To the 
extent that this process takes the form of the creation of new large 
enterprises out of existent smaller concerns or the buying up of small 
concerns by larger enterprises, concentration is, of course, increased. 

There are probably few economic concepts about big business which 
are more widely held than the belief that the long-term increase in 
concentration has been due principally and primarily to in^ternal ex- 
pansion — ^to the building of new and bigger plants by large corpora- 
tions ; and that this, in turn, has been the inevitable result of the re- 
quirements of modern technology. 

While it is impossible to measure the importance of internal versus 
external growth in iiidustry as a whole, what little information there 
is on the subject suggests that the role of external expansion has been 



THE MERGER MOVEMENT 



23 



unduly discounted; that, in fact, a very large part of the rise in 
economic concentration has been due to consolidations, acquisitions, 
and mergers. Such a conclusion is suggested by the following types 
of evidence. 

(a) The origins of external growth in American industry can be 
traced back to the cruder forms of conspiracies among independent 
firms which flourished during the middle and latter part of the nine- 
teenth century. In the years immediately following the Civil war, 
businessmen entered into "gentlemen's agreements" for the express pur- 
pose of deciding and agreeing upon prices. As it was soon found 
that prices could not be effectively regulated without also controlling 
production, the "gentlemen's agreements" were supplanted by "pools," 
in which each individual producer was formally allotted a specific 
share of the market. This, too, proved to be an inadequate means of 
controlling the market, and it was followed by the "trust," under 
which the individual firms retained some degree of autonomy but 
relinquished control over prices and production to the "trustees." 
But the trust fell victim of a variety of maladies : It was vigorously 
attacked under the common law and under State statutes, particularly 
by the State of Ohio ; it had aroused intense public indignation since 
the rapacity of certain trustees had known no bounds ; and finally, a 
more durable and lasting mechanism of control was presented in the 
form of the "holding company," whose illegal status under the com- 
mon law had been removed by a statute enacted by the State of New 
Jersey. From that time on, external growth has centered in the cre- 
ation or expansion of the modern, giant corporation. 

It is often forgotten that many of the Nation's largest corporations 
were originally created as giant consolidations of numerous existing 
small firms. According to one of the leading students of the monopoly 
problem, it was the consolidation movement at the turn of the century 
that "* * * gave to American industry its characteristic twentieth 
century concentration of control." ^ The principal objective of this 
movement was to gain control of the market, not only through hori- 
zontal combinations of competitors, but also through combining into a 
vertical structure all of the stages of production from raw materials to 
finished goods. (For example, the United States Steel Corp. brought 
under one control not only the greater part of the iron and steel pro- 
ducing and rolling facilities, but also organizations extracting and 
transporting iron ore, coal, and other raw materials, from the ground 
up.) Among the present-day industrial giants which emerged during 
that period as great consolidations were: American Tobacco Co. 

« Paul T. Homan, "Trusts : Early Development," Encyclopaedia of Social Sciences, vol. 
•^v. p. 114. 



1 



i 



1 



It 



24 



REPORT OF FEDERAL TRADE COMMISSION 



THE MERGER MOVEMENT 



25 



II 



I 



J 



(1890), American Sugar Kefining Co. (1891), General Electric Co. 
(1892), United States Rubber Co. (1892), United States Leather Co. 
(1893), Pittsburgh Plate Glass Co. (1895), New Jersey Zinc Co. 
(1897), National Biscuit Co. (1898), Amalgamated Copper Co. (1899), 
American Car & Foundry Co. (1899), American Woolen Co. (1899), 
International Paper Co. (1899), Pullman Co. (1899), International 
Silver Co. (1899), United Shoe Machinery Corp. (1899), American 
Brass Co. (1900) , United States Steel Corp. (1901) , American Can Co. 
(1901), Eastman Kodak Co. (1901), International Harvester Co. 
( 1902) , International Nickel Co. ( 1902) , and E. I. du Pont de Nemours 
Powder Co. ( 1903) . By 1904, the so-called "trusts" had in their bauds 
40 percent of all the manufacturing capital, in the United Stat^is,^ 
with a list of at least 30 products, ranging from asphalt to whiskey, 
under virtual monopoly control. Before the wave of industrial con- 
solidation had died down, 26 corporations were said to have controlled 
80 percent or more of the production in their respective fields ; 57, 60 
percent or more ; and 78, 50 percent or more.^^ 

(b) During the twenties, external expansion through the merger 
movement again reached a peak, the typical action generally involving 
one of the "leaders" of a major industry. Thus, many of the horizontal 
mergers were engineered by concerns, which, though not the largest 
in the industry, were still among its first three or four (e. g., in steel, 
Bethlehem Steel Corp. and Republic Steel Corp. ; and in chemicals. 
Allied Chemical and Dye) . Vertical expansions took on the chara<Jter 
of intervention into medium-sized business sectors producing parts, 
components, etc,, consumed in the mass-production industries (e. g., in 
the automobile industry), while the encroachment of large corpora- 
tions into the fabricating fields (e. g., the steel and copper industries) 
was promoted to a limited extent. In some characteristically small 
business industries, which had been relatively untouched by mergers, 
new consolidations were formed and expanded to great prominence 
by the acquisition route (e. g.. National Dairy Products, General Foods, 
and Standard Brands) . 

(c) A moreconcrete idea of the importance of external growth in the 
rise of big business can probably be gained from an examination of 
a specifi c industry. The Commission has made sucira~stii3y for the 
major companies in the steel industry, an industry which constitutes 
the foundation of the Nation's immense metal-working economy and 



•*'Henry R. Seager and Charles A. Gulick, Jr., Trust and Corporation Problems (Harper 
ABros., 1929),p. 61. 
, "John Moody, The Troth About the Trusts (New York, 1905), p. 487. 



one which is often considered to be the "bellwether" of American 
enterprise.^® 

It should be noted, however, that the study, which covers the period 
1915-45 (and is presented as appendix of this report) , tends to under- 
state the importance of external expansion, since it necessarily starts 
with certain original steel concerns which themselves were often the 
product of great consolidations of earlier companies, as in the case 
of United States Steel. Unfortunately, it is impossible with existent \ 
data to measure the extent to which the act of consolidating such J 
earlier companies contributed to external growth. ' 

Even with this important shortcoming, the results of the study 
clearly indicate that mergers and acquisitions have accounted for a 
substantial proportion of the over-all growth of the major steel com- 
panies. The estimates of the extent to which long-term growth (fol- 
lowing the formation of the original companies) has been due to ex- 
ternal expansion are as follows : Bethlehem, one-third; Republic, two- 
thirds ; Jones & Laughlin, one-sixth ; Youngstown Sheet & Tube, one- 
fourth ; American Rolling Mill, one-fifth ; Inland, one-tenth ; Colo- 
rado Fuel & Iron, two-fifths ; and United States Steel (which has made 
relatively few acquisitions since its original great consolidation) one- 
fourteenth. (For these eight companies taken together, the figure is 
approximately 25 percent.) 

(d) The importance of external expansion in promoting concentra-^j 
tion has never been more clearly revealed than in the acquisition move- / 
ment that is taking place at the present time— a movement which C 
is strengthening the position of big business in several ways^ In the ( 
first place, several of the traditionally "small-business" industries have y 
been affected. The two leading industries, in terms of number of^ 
acquisitions, have been textiles and apparel, and food and kindred 
products—both predominantly small business fields. Moreover, in 
certain small-business industries (notably steel drums, tight cooper- 
age, and wines), virtually all or a substantial part of the industry 
has been ta ken over by big corporations. Finally, the outstandings 

»« There are several reasons for assuming that long-term growth may have been due 
more to internal and less to external expansion in the steel industry than in most of the^ 
other major fields. The number of steel producers is severely limited by the comparatively 
xarge capital entrance requirements, location of materials, etc., factors which tend to lessen 
tne opportunities for horizontal acquisitions of other producers in the same industry 
Many, if not most of the technological processes of steel makin g require contiguous and 
Closely integrated plants and facilities, a factor which tends~(a) /to promote grWtb 
mrough internal expansion and (b) to lessen the desirability of making acquisitions of 
scattered properties. If this assumption is correct, the selection of the steel industry as 
tne example to be used in this examination has the effect of understating the role of 
external growth in industry as a whole. *- — — 



II 



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26 






REPORT OF FEDERAL TRADE COMMISSION 





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THE MERGER MOVEMENT 



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SIZE OF CONCERNS ACQUIRED 



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ACQUISITIONS in MANUFACTURING 

and MINING, 1940-1947 

By Size of Concerns Acquired 




300 



200 



100 



Si2« of Concerns Acquired 
(Assets, pillions of Dollars) 



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source of dofo- Bosed upon octions reported by Moody's investors Service, and Stondord 8 Poor's Corporof 



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28 



REPORT OF FEDERAL TRADE COMMISSION 



characteristic of the movement has been that of large corporations 
buying out small companies. 

Thus, Chart 3 sliows that the preponderant number of firms have 
been acquired by the very largest corporations. Nearly one-third 
(30 percent) of the companies merged since 1940 have been absorbed 
by corporations with assets exceeding $50 million. Another 40 per- 
cent of the total have been taken over by corporations with assets 
ranging from $5 million to $49 million. Hence, more than 70 percent 
of the total number of firms acquired during this period have been 
absorbed by larger corporations with assets of over $5 million. At 
the other end of the scale, the distinctly small firms, those with less 
than $1 million of assets, have made only 11 percent of the' acquisitions. 

The other half of this picture (see Chart 4) of large corporations 
taking over small firms, shows that fully 93 percent of all the firms 
bought out since 1940 held assets of less than $5 million, and 71 per- 
cent had less than $1 million of assets. On the other hand, only 4 
percent of the total number of acquired firms had assets of over $10 
million. 

Of the Nation's 200 largest manufacturing corporations, 123 have 
made corporate acquisitions since 1940, accounting, iij the aggre^jate, 
for approximately 27 percent of all the firms bought up. Some 33 of 
the top 200 corporations have bought out a n average of more th an 5 
companies each, and 13 have purchased more than 10 companies each. 

The evidence thus points cFearly to the conclusion that, insofar as 
its impact on concentration is concerned, the outstanding character- 
istic of the current merger movement has been the absorption of 
smaller, independent enterprises by larger concerns. 

In summary the conclusion that external expansion has, indeed, 
played an extraordinarily important role in the rise of concentration 
would seem to be clearly indicated by (a) the number of present-day 
giant corporations which were originally created as consolidations of 
existent smaller enterprises, particularly during the era of consolida- 
tion of 1897-1905 ; (b) the magnitude of the merger movement during 
the twenties; (c) the role of external growth in a specific major 
industry in which its importance has been carefully measured and (d) 
the character of the present merger movement. These considerat ions 
would seem to warrant a thoroughgoing review of the widely lield 
belief that the long-term increase in concentration has been due prin- 
cipally and primarily to internal expansions- 



Part II. TYPES OF MERGER ACTIVITY 

In the complex industrial society of today^ mergers and acquisitions 
take a wide variety of different and sometimes completely opposite 
directions, which have traditionally been designated as horizontal, 
vertical, and conglomerate. Horizontal acquisitions are those in 
which the firms involved are engaged in roughly similar lines of 
production; vertical acquisitions are those in which the purchase 
i-epresents a movement either forward toward the end-product stages 
or backward toward raw materials; and conglomerate acquisitions 
are those in which there is no discernible relationship in the nature of 
business between the purchasing and the acquired firms. 

In Chart 5 the more than 2,000 mergers and acquisitions which have ) 
taken place during 1940-47 are distributed according to these various > 
directions of merger activity. As will be noted, horizontal acquisi- 
tions have been more important during this period thjin all of the 
other types coi«bined; no less than 62 percent of all acquisitions have|/ 
been of the horizontal type. ff 

Moreover, this predominance of horizontal acquisitions prevails 
throughout the industrial structure. As Chart 6 indicates, horizontal 
acquisitions represented the most important type of merger activity 
in each of the major manufacturing and mining groups, ranging from 
iiearly 90 percent of the total in mining to slightly less than 50 percent 
in primary metals. 

In this latter group, vertical acquisitions were reiatiT«?y more 
important than in any other industry, largely as a result of the for- 
ward expansion by basic metal producers into various fabricating 
fields. As would be expected, a considerable number of forward 
vertical acquisitions were also made by firms in such other basic ( 
materials fields as chemicals and textiles. Correlatively, the backward 
vertical mergers were made principally by firms in such fabricating ^ . 
fields as electrical machinery, paper and allied products, food, trans- <^ 
portation equipment, and textiles and apparel (which witnessed 
practically every conceivable type of merger activity). 

Conglomerate acquisitions, which were spread fairly widely 
throughout the industrial structure, were particularly prominent in 
such diverse industries as beverages, nonelectrical machinerv, fabri- 
cated metals, transportation equipment (including aircraft) and drugs 
and medicines. 

29 



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THE MERGER MOVEMENT 



31 



C/torf e 

DIRECTION OF EXPANSION INDICATED BY MERGERS 

AND ACQUISITIONS OF MANUFACTURING 

AND MINING CONCERNS 

CLASSIFIED BY INDUSTRY OF ACQUIRING CONCERN 
JANUARY 1940 DECEMBER 1947 



INDUSTRY GROUP 
(ACQUIRING CONCCRN)^ 



TOTAL (2062) ^ 



MINING (71) 

PgOOOCTS OF PETROLEUM 
AND COAL (157) 

DRUGS AND MEDICINES (83) 

PAPER AND ALLIED 
PRODUCTS (841 

BEVERAGES (99) 

CHEMICALS OTHER THAN 
DRUGS AND MEDICINES (129) 

FOOD (270) 

MACHINERY, EXCEPT 
ELECTRICAL (16^ 



TEXTILES AND APPAREL (154) 

ELECTRICAL MACHINERY (109 

TRANSPORTATION 
EQUIPMENT (149) 

FABRICATED METALS (107) 

PRIMARY METALS (134) 

N0NMANUFACTURIN6 (104) 



HORIZONTAL VERTICAL 

mm. 



FORWARD BACKUMWV) 



PERCENT 
40 60 



CONGLOMERATE 




:-::;!L;i::;:t::::: ::::::'::::::::::--^-.' ! ,..\.v. \ r ^ 



] 



r 



i/ The FIGURES IN PAROtTHESeS AFTER EACH INDUSTRY GROUP INDICATE Tl^ NUUBER OF CONCERNS ACQUIRED 

if INCUJOES GROUPS NOT SHOWN SEPARATELY IN CHART 

1/ DOES NOT INCLUDE 388 ACQUISITIONS REPORTED IN TEXTILE WORLD 

SOURCE ! BASED UPON ACTIONS REPORTED BY MOODY'S INVESTORS SERVICE AND STANDARD AND POOR'S CORP. 

Within these broad categories of horizontal, vertical, and con- 
glomerate there are a number of recognizable subgroups. Thus, 
horizontal mergers may be broken down into three such groups-^ 
direct^^siibstitute^products, ajod j^hain. The first takes place when 
the companies involved make essentially the same type of products ; 






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32 



REPORT OF FEDER.\L TRADE COMMISSION 



the second occurs when the acquired company makes a product which 
can be substituted for that of the acquiring firm ; and the third takes I 
place when a company expands geographically through acquisitions I 
in one locality after another, purchajingjfirms making generally! 
similar products for local market consumption. 

Similarly, vertical acquisitions can be broken down into three 
different subgroups — forward, backward, and two-way. The first, 
of course, takes place when the acquiring company moves forward in 
the production process towards the final or end-product stage; the 
second occurs when it moves backward in the production process 
towards the raw material or semifinislied product stage; and the third 
may be said to exist when, within a given industry, both the forward 
and backward vertical movements are actively taking place at the 

same time. 

It is impossible, however, to break down the broad class of con- 
glomerate acquisitions into any meaningful subgroups, since practi- 
cally every conglomerate action is a case by itself. 

In addition, there is one final, recognizable type, referred to as the 
tie-in merger, which cuts across all other forms of merger activity. 
In this type, the acquisition of facilities or of capital stock is accom- 
panied by (or even incidental to) the obtaining of some other factor 
of outstanding economic importance such as stocks of goods on hand, 
trade names, goodwill, etc. 

It is the purpose of this part of the report to describe and illustrate 
each of the above types of merger activity, using as examples specific 
acquisitions which have taken place in the current merger movement, 
from 1940 through 1947. 

HORIZONTAL ACQUISITIONS 

The most common type of acquisition in the current movement is the 
so-called horizontal merger, the bringing together of producers in 
roughly similar fields. In earlier days, the removal of potential com- 
petitors was generally a matter of relative simplicity. One firm would 
simply acquire another company that was producing the same product 
and selling in the same geogi-aphical area. But with the advent of 
modem technology, the removal of competitors has become a fairly 
complicated process. For one thing, technology keeps unfolding to 
the industrial world new products which in many cases represent not 
only acceptable but cheaper substitutes for established goods. In 
order to control the market, the producer of the old product must 
acquire the budding concerns which are turning out these new results 
of modern technology. Whether the established firm takes these nev7 
products off the market or launches into their production, the result is 



THE MERGER MOVEMENT 



33 



the same — the control of the new^er products of modern technology by 
the older and generally larger enterprises. Similarly, the vast im- 
provement in the means of transportation and communication has 
influenced the merger movement by (1) enhan|;^ ng the attractiv eness 
and feasibility of moving into other areas, and (2) enlarging the orbit 
in which troublesome competitors may be found. The resultant type 
of expansion may be termed chain or local market acquisitions. In 
this type of movement a company, through the acquisition of generally 
similar, localized firms, expands its operation into one locality after 
another, until it has achieved a predominant position in various regions 
or even in the nation as a whole. 

/ ■ 
(1) Direct Horizontal Acquisitions 

The recent acquisitions made by United Wallpaper, Inc., provide an 
outstanding example of the direct horizontal type of merger. This 
firm is the largest manufacturer of w^allpaper in the United States and 
accounts for about 26 percent of the total domestic output. In 1947 it 
purchased two competitors, the Superior Wallpaper Co. of Joliet, 111., 
and the Missouri Valley Wallpaper Mill at North Kansas City, Mo. 
According to a press i-elease issued by the United Wallpaper Co., these 
two acquisitions added another 5 percent of the industry's production 
to its total. United Wallpaper followed this merger by announcing 
that it would establish a "franchise plan," under which distributors 
and their dealers would be offered exclusive sales territories for a new 
line of wallpaper. This system w^as to differ from the prevailing one 
under which "competing distributors in many sales territories carry 
identical lines of wallpaper made by United and other manufac- 
facturers." ^ 

Other examples of "direct horizontal" acquisition include the fol- 
lowing : 

In the food industry, the Pet Milk Co., one of the oldest producers 
of evaporated milk, acquired the Van Camp Milk Co. in 1944. The 
latter firm not only is a producer of evaporated milk, but operates 
in the same general territory as the Pet Milk Co.^ 

The Atlas Plywood Corp., which is reported to produce about 70 
percent of the Nation's plywood packing cases,^ in 1946 acquired the 
Marvil Package Co., a well-established manufacturer of fruit and 
vegetable baskets and trays. In the same year Atlas purchased the 
Plymouth Box and Panel Co. of Plymouth, N. C. 

^WaU street Journal, May 4, 1M8. [Italics added.] 

' ^he Van Camp firm at one time was a subsidiary of tlie Van Camp Packing Co., but 
was independent at the time of its merger with Pet Milk Co. (Cf. New York Stock 
Bxj^hange Registration Statement No. A-11852, dated July 31, 1944.) 

» Standard & Poor's Miscellaneous Industrial Surveys, December 24, 1947, p. M7-1. 



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REPORT OF FEDERAL TRADE COMMISSION 



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Talon, Inc., leading maker of slide fasteners^ acquired the Wilson 
Fastener Corp. of Cleveland, Ohio, manufacturer of garment fasteners. 
A similar acquisition of a direct competitor was made by United-Carr 
Fastener Corp., a leading producer of snaps and other fasteners, which 
bought the Columbia Fastener Co. of Chicago, a manufacturer of 
dress fasteners. 

Acquisitions of direct competitors have been rather numerous in 
various branches of the chemicals industry. Air Reduction Co., <me 
of the two largest makers of oxygen and acetylene gases, and the larg- 
est supplier of carbon dioxide and dry ice in the United States^ in 194:1 
acquired the Commercial Gas Co., an oxygen producer, and the Solid 
Carbonic Corp., a producer of carbon dioxide. These acquisitions 
were followed in 1945 by its purchase of the Home Oxygen Co., Inc., 
of Los Angeles. The National Cylinder Gas Co. was even more acti ve, 
acquiring seven direct competitors in the manufacture of industrial 
and medicinal gases, and an eighth firm which is a source of raw raa- 
terials (calcium carbide) used in the production of gas. 

Paint manufacturers have also been active in acquiring competing 
companies. The Devoe & Raynolds Co., a large paint producer, in 
1944 bought the James Bradford Co., a paint manufacturer, of Wil- 
mington, Del. Since 1940 American-Marietta Co., manufacturer and 
distributor of paints, varnishes, etc., has acquired four paint manu- 
facturing firms, two of which were multiplant companies. 

In the field of synthetic fabrics^ an outstanding merger in 1946 
brought together Celanese Corp. of America (the country's largest 
producer of acetate yarn) and the Tubize Rayon Corp. (a leading 
producer of both viscose and acetate yarns and fabrics) . The effect 
of this combination on competition in the rayon industry is enhanced 
by the fact that concentration was already substantial and. be- 
cause of technical problems and the scale of investment required, entry 
into the industry is difficult. 

Even in the basic steel industry, which has already witnessed scores 
of horizontal mergers, a further important acquisition took place in 
1942 when Jones & Laughlin Steel Corp. purchased the Otis Steel Co. 
of Cleveland, thereby enlarging its steel-making capacity by one mil- 
lion tons. Bethlehem Steel Corp., which, among other things, is the 
Nation's leading shipbuilder, expanded its predominance in that field 
by acquiring the Pennsylvania Shipyards, Inc., of Beaumont, Tex. 

A number of substantial mergers of competitors appeared in the 
aircraft industry. In December 1941, Lockheed Aircraft Corp. merged 
with Vega Aircraft Corp. This merger was followed in 194S by a 
merger of Consolidated Aircraft Corp. and Vultee Aircraft, Inc., both 
located in San Diego, forming a company which has been described 



THE MERGER MOVEMENT 



35 



as "one of the largest and most diversified producers of aircraft." A 
further merger which was proposed between Consolidated- Vultee and 
Lockheed in 1946 was abandoned after the Department of Justice 
expressed its disapproval of the project. 

In other fields, mergers of competitors included the combination 
of Thompson Products, Inc. (a leading producer of engines and parts 
for the automfwbile and aircraft industries) and International Piston 
Ring Co. ; and the acquisition by National Battery Co. of the Storage 
Battery Division of Philco Radio Corp., to establish one of the largest 
replacement storage battery companies in the United States. 

Finally, one of the largest mergers of recent years brought together 
two of the leading producers of bituminous coal in the United States. 
In November 1945, the Pittsburgh Coal Co., 43 percent of whose stock 
was owned by the Mellon interests, was merged with the Consolida- 
tion Coal Co., under control of the Hannas of Cleveland,* to form 
Pittsburgh-Consolidation Coal Co., the largest commercial producer 
of soft coal in the United States.' This merger not only brought to- 
gether major competitors but also resulted in a link between two of 
the Nation's strongest financial interests. With this strong backing, 
Pitt-Consol has embarked on an extensive and costly research pro- 
gram into the development of synthetic fuels, a project in which it has 
had the active cooperation of the Standard Oil Co. (New Jersey), 
Standard Oil Co. of Indiana, and Texas Co. 

(2) Substitute Product Acquisitions 

t 

An outstanding illustration of this type of acquisition is provided 
by the recent action of Continental Can Co. in acquiring all or part 
of some eight companies producing fiber and paper containers. Con- 
tinental Can is the second largest tin can manufacturer in the United 
•States, accounting for approximately 30 percent of the industry's 
total sales. Organized in 1913 by individuals formerly associated with 
the American Can organization,^ Continental may attribute the lion's 
share of its growth to the acquisition of competitors. For example, 

* The Hannas had previously bought up the Rockefeller interest In Consolidation. Ac- 
cording to Fortune (May 1947), as of December 31, 1946, the M. A. Hanna Co. owned 37.8 
percent of the common stocls and 20 percent of the 3%-percent debentures of Pittsburgh- 
Consolidation Coal. 

» United States Steel Corp.'s captive mines produce a somewhat greater tonnage, but it 
is not available on the open market. 

« Edwin Norton, who had headed the Norton Tin Can & Plate Co., was the chief nego- 
tiator in bringing most of the can companies of the country into the American Can Co. 
Although he had agreed not to go into the manufacture of tin cans again for 15 years or 
within 3,000 miles of Chicago, nothing was said as to whether his son could go into the 
business. Thus, A. W. Norton, in organizing Continental Can, brought in several American 
Can executives (notably Thomas G. Granwell, vice president of American Can, who 
brought to Continental the Campbell Soup account) to aid in running the business (Cf 
fortune. April 1934, p. 80.) 



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REPORT OF FEDERAL TRADE COMMISSION 



during one of its most active merger periods, 1926-29, Continental 
Can absorbed no less than 15 other tin can producers, including the 
United States Can Co., then the third largest in the trade. Only the 
stock market crash in 1929 prevented it from merging with the Owens- 
Illinois Glass Co., then the fifth largest producer of tin cans and the 
leading producer of glass containers. 

Hardly a year has passed without a number of corporate acquisi- 
tions by Continental. But its movement into the paper and fiber (jan 
field has been particularly active in recent years. Beginning in 1942, 
Continental in quick succession picked up part or all of the can-mak- 
ing equipment of four firms located in Cincinnati, Boston, St. Louis, 
and Utica, N. Y.^ and then bought up the entire capital stock of the 
Container Co. (Van Wert, Ohio). In 1943 Continental purchased 
the can-making facilities of Val Vita Food Products at Fullerton, 
Calif., and in the following year bought out Keystone Drum Co. (fiber 
drums), and Mono Service Co. (paper cups and containers). It also 
fortified its position by buying up two can-making machinery firras,® 
and then reinforced its supply sources by purchasing Gould Paper (3o., 
a manufacturer of ground wood pulp and Filer Fiber Co., a producer 
of sulphate paper— raw materials used in the production of fiber cans. 
Meanwhile, it had picked up two producers of crown caps.» Finally, 
it purchased the Owens-Hlinois Can Co., subsidiary of Owens-Illinois 
Glass Co. (but not the parent company) . 

Through these recent acquisitions, Continental has acted not only 
to insulate itself against direct competition with smaller firms in the 
tin can field, but also to ward off potential competition in the rapidly 
expanding fiber container business. 

(3) Chain AcQuismoNS — Dairy Products 

The past quarter of a century has witnessed the spread of what 
might be termed a type of movement which is most strikingly illus- 
trated by the retail chain stores. However, the chain store idesr of 
establishing centralized national, or at least regional, control over lo- 
cal units has by no means been confined to the field of retail trade. It 
has been adopted by many manufacturing industries, particularly by 
those in which the capital entrance requirements— owing to relatively 
simple technologies— are comparatively small and in which the market 
area is severely limited by the perishability of the products, their high 
freight costs, or similar factors. In short, this type of merger activity 

'These were Gardner-Richardson Co., Boothby Fiber Can Co., Square Star Can Co.. and 
Fonda Container Co., respectively. 

"Cameron Can Machinery Co. (Lyons Falls, N. Y.) and Fibre Can Machinery <:orp. 

(Rutland. Vt.). 
» Bond Manufacturing Corp., Inc., and Bamberger-Kraus & Co. 



THE MERGER MOVEMENT 



37 



has be«n most pronounced in those veiy industries in which technology 
and market areas are most suited to local^ independent, small business 
operations. 

Typically, the firms which have followed this pattern have grown 
by buying up concerns making the same product in one or a few lo- 
calities, strengthening their position in those localities by additional 
acquisitions, branching out t£> obtain control in other localities, con- 
solidating their local acquisitions into broad regional or district or- 
ganizations, bringing into the fold leading companies in the major 
regions, and, by this steady pattern of encroachment, becoming Na- 
tion-wide organizations with a substantial degree of control in the 
Nation as a whole, a much higher degree in many of the important 
regions, and a near-monopoly position in numerous individual locali- 
ties. 

It is in such fields as dairy products and bread that this type of 
merger activity has been pushed most vigorously. In fact, the growth 
of such outstanding Nation-wide companies as National Dairy Prod- 
ucts Corp. and the Borden Co. could be likened to an acquisition itin- 
erary, sweeping across the country from one large city to another, and 
gathering in its wake hundreds of companies serving small communi- 
ties as well. During the 22-year period, 1924 through 1945, National 
Dairy Products acquired more than 400 concerns engaged in the pro- 
cessing and distribution of fluid milk, ice cream, cheese, butter, and 
condensed and evaporated milk. This corporation distributes any- 
where from one-fifth to over half of the fluid milk in such important 
metropolitan areas as Boston, New York, Hartford, Philadelphia, 
Pittsburgh, Baltimore, and Washington.^^* It also accounts for about 
one-fifth of the Nation's total ice cream sales, and distributes as much 
as 4^ to 50 percent of the ice cream in more than a dozen states.^^ In 




Percent 

Hartford, Conn 28. 8 

New York, N. Y 25.0 

Boston, Mass 20. 



" For 1937 the figures were as follows : 

Percent 

Washington, D. C 56. 

Baltimore, Md ,__ 55. 

Pittsburgh, Pa 42. 5 

Philadelphia, Pa 32. 

(Cf. Hearings on H. R. 2357, "To Amend Sections 7 and 11 of the Clayton Act," Serial No. 
8, May 23, 24, 25, and September 20, 1945, p. 256.) 
" For 1937 the figures were as follows {lUd., p. 254) : 

Percent of 
total 
Connecticut 52. 4 



Vermont 51. g 

New Jersey 48. 9 

North Carolina 47.3 

District of Columbia 46. 8 

Virginia 41. 1 

Maine-.w^ilLjlJ^lil^.^J 40V0 

New Hampshire^—l . 39. 5 

Tennessee 33, 2 



' Percent of 
total 

Pennsylvania , 32. 4 

Massachusetts 30. 8 

New York 29. 7 

Rhode Island 24. 3 

Alabama 23. 2 

South Carolina 22. 

Florida 20. 4 

Georgia _ jg] g 

Maryland ; g^ y 






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REPORT OF FEDERAL TRADE COMMISSIOl. 



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addition, it is the Nation's largest cheese manufacturer, a position 
which it achieved largely through the acquisition in 1930 of the Kraf t- 
Phenix Cheese Co. 

The Borden Co. likewise has a long history of expansion through 
mergers and acquisitions, dating back to its organization in 1857. 
Although condensed milk was originated by the founder of the com- 
pany, Mr. Gale Borden (as a method of utilizing surplus milk dur- 
ing the peak season of the year) , it was largely through the acquisi- 
tion of competitoi-s that the company became known around the turn 
of the century as the condensed milk trust.^^ Until the latter tw€;n- 
ties, the manufacture and sale of condensed and evaporated milk re- 
mained as the core of Borden's activities. But beginning in 1927, 
Borden embarked on a broad and ambitious program of diversifi(ia- 
tion and expansion through acquisitions. From that date through 
1945, Borden Co. has bought no less than 531 formerly independc^nt 
enterprises or groups of enterprises embracing all divisions of the 
dairy products industry, including fluid milk, ice cream, cheese, but- 
ter, condensed and evaporated milk, milk byproducts, and miscella- 
neous other products. Moreover, it has expanded into foreign fields 
as well, buying 21 foreign companies between 1928 and 1931. j^Ll- 
though surpassed by National Dairy Products Corp. in the sale of 
fluid milk and in the manufacture of butter and cheese, Borden re- 
mains the country's largest producer of canned milk. 
f^^It is of interest to note that both of these companies have followed 
a deliberate policy of purchasing the capital stock of other companies 
where no interstate commerce or competition is involved and of us- 
ing the alternative of acquiring assets where the acquisition might 
f raise the question of a violation of section 7 of the Clayton Act. 

The area covered by these companies is shown by the accompany- 
ing map (Chart 7) which shows for a prewar year, 1938, the location 
of milk and dairy product plants owned or controlled by the National 
Dairy Products Corp. With plants located in all but 6 of the 48 
States, National Dairy operates in every part of the United States 
east of the Rocky Mountains, gathering and distributing fluid milk, 
and manufacturing butter, cheese, ice cream, evaporated milk, or 
other milk products. Similarly, the Borden Co. covers most of the 
country, distributing fluid milk in 19 States and manufacturing ice 
cream in 27 States. In addition, it operates 16 cheese plants in Wis- 
consin and others in Illinois, New York, Ohio, and Tennessee.^^ 

In achieving such geographical coverage. National Dairy Products 
relied almost completely upon acquisitions. Each of the constituent 

" John Moody, The Truth About the Trusts, Moody Publishing Co., 1904, p. 289. 
"Borden also operates fluid milk, ice cream, and cheese plants in the ProTlncefl of 
Ontario and Quebec in Canada. 





795355 O - 4li (Face p. 38) 



L 813 



THE MERGER MOVEMENT 



39 



parts of the original (1923) consolidation formed the basis for further 
expansion. The Reick-McJunkin Dairy Co. (itself the product of 
earlier mergers) represented an advantageous point of embarkation 
into the fluid-milk business, since it was not only the largest milk 
distributor in the Pittsburgh area, but also a well-rounded corporation, 
engaged in the manufacture and sale of such products as ice cream, 
butter, cheese, milk powder, condensed milk, casein, and milk sugar. 
The other half of the consolidation, Hydrox Corp., was an established 
Chicago ice-cream company, with a substantial business in soft drinks. 
In quick succession. National Dairy bought up leading fluid-milk dis- 
tributors in the major eastern and southern cities. To the east, it 
first bought out the Supplee-Wills- Jones Milk Co., with one-third of 
the fluid-milk business in the Philadelphia metropolitan area (as well 
as a large business in ice cream and other dairy products) . This was 
followed ahnost immediately by the purchase of the Sheffield Farms 
Co., Inc., on a par with the Borden Co. in the distribution of fluid milk 
in New York City. To the south, it bought up a large dairy company 
in Memphis, Tenn. (Clover Farm Dairy Corp.), and directly to the 
north it purchased a substantial distributor in Erie, Pa. (Erie County 
Milk Association). Three years later (in 1928) National Dairy 
moved into Cleveland to acquire the Telling-Belle Vernon Co., a large 
organization serving virtually all northern Ohio with both fluid mUk 
and ice cream, and itself a combination of a number of local milk dis- 
tributors. This was followed almost immediately by purchase of 
Akron Pure Milk Co., the largest milk distributor in Akron, Ohio.^* 
At the peak of the movement, in 1929, National Dairy moved on to 
purchase leading distributors in Ohio,^^ Michigan (Detroit Creamery 
Co.), 16 Kentucky (Gray-Von Allman Sanitary Milk Co., and D H 
Ewing's & Sons Co., Inc.),^^ and Washington, D. C. (Chestnut Farms 
Dairy Co. and Chevy Chase Dairy, Inc.). These purchases were 
followed by a series of acquisitions which made National Dairy the 
dominant milk distributor in the Baltimore area.^^ 

"In subsequent years, both of these acquisitions were supplemented by the purchase of 
Products* Corr*"'"'' '"'''''^ ^^^ ^^""^ localities in competition with the National Dairy 

Sanitrrv'MnJ'r''' ^t^." (O^o Clover Leaf Dairy Co.) and Toungstown (Youngstown 
Sanitary Milk Co. and its subsidiaries, W. R. Ruhlman & Sons, Inc., and Ohio Pure Milk 
Co. Later, during 1929 and 1930, the assets of E. P. Kaufman. Mike Paphul, Charles H 
Sheiienburger and Henry Dister, all independent milk distributors in Young town wefe 
acquired and transferred to Youngstown Sanitary Milk Co. ^stown, were 

i« Later the corporation acquired the assets of Arctic Dairy Products Co' Detroit- Citi 
zens Dairy Co.. Flint. Mich. ; Bridgeman Dairy Co.. also of Flint ; and Bar;etSoii an 
individual distributor of Dowagiac, Mich. ; and transferred the assets of these fo^erns to 
fhe nt ""r""'" ""^ subsequently, no less than eight additional dairy compLTos se" ing 
the Detroit area were acquired by National Dairy Products Corp strving 

hJI^*/f *^^ ice-cream business of National Ice Cream Co. and Frozen Pure loe Cream Co 
'"LVh' ""^^?"%"r f^^"-^^ ""' transferred to the Ewing-Von Allman Dairy Co ' 

Inc..?nTAcme"Da1rr ''"' ""'''' ''''''•' ^''''''' ^^^"^' ''''' ^^"^^'« ^^^>' 



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REPORT OF FEDERAL TRADE COMMISSION 



Meanwhile, National Dairy had become the country's largest ice- 
cream manufacturer by acquiring a dozen major and numerous small 
producers in various parts of the country .^^ 

A roughly similar pattern of geographical expansion was followexl 
by the Borden Co. Having entered the fluid milk distribution busi- 
ness in Chicago, it tremendously enlarged its activities between 19Si8 
and 1933 by purchasing, first, the important Wieland Dairy Co. an<i, 
second, the assets of no fewer than 21 other distributors of milk in 
the Chicago sales area ; in addition it gained control over a substantial 
proportion of the ice-cream business in Chicago through the purchase 
of the Wieland Ice Cream Co. (owned by the same interests as the 
Wieland Dairy Co.). 

For many years a leading distributor of milk in New York City, 
Borden acquired the Willow Brook Dairy Co. in 1930 and enormously 
enlarged its ice-cream business in the area by purchasing the assets 
of seven ice-cream manufacturers in New York City. In a similar 
manner it entered the Baltimore sales area by acquiring the assets of 
four ice-cream companies, purchased leading milk distributors in Mil- 
waukee and Detroit, and then jumped to the Pacific coast to purchase 
some 14 milk distributors serving the San Francisco metropolitan 
area. 

During the current merger movement both of these companies ha^'e 
continued to expand. Immediately prior to the war, National Daiiy 
Products consolidated its position by moving into New England to 
acquire leading milk distributors of Boston and Hartford.^" For the 
most part, however, its other acquisitions since 1940 have consisted of 
a large number of small cheese distributors, located in many parts of 
the country, plus a number of smaller ice cream and fluid milk firms. 

The Borden Co., as is indicated by the accompanying chart (Chart 
8), has not only continued to expand in the dairy products field but has 

" The most impM^tant of these (all acquired, jncidentally, between 1928 and 19SQ) were 
the following : (1) General Ice Cream Corp., and its subsidiaries operating throughout the 
New England States and in New York State, except New York City ; (2) Breyer Ice Cream 
Co., in New York City, New Jersey, Delaware, Pennsylvania, Maryland, and the District 
of Columbia; and (3) Southern Dairies, Inc. (subsidiary of Kraft-Phenix Cheese Corp.) 
and its subsidiaries in Maryland, District of Columbia, North Carolina, South Carolina, 
Georgia, Florida, Alabama, and Tennessee. National Dairy's initial step in the cheese 
industry was taken with the purchase of Breakstone Bros., Inc., of New York, in 1928, 
which was followed by the acquisition of Louis Feingold of the Bronx, N. Y., National 
Creamery Co. of Boston, and National Cheese Co. of Chicago. Kraft-Phenix Cheese Co., 
acquired in 1930. was in substantial competition with Breakstone Bros, and other Natioral 
Dairy subsidiaries in the production and sale of cheese. In the butter industry. National 
Dairy made numerous acquisitions, outstanding among which were Sugar Creek Creamery 
Co. and National Butter Co. of Iowa (both with home offices in Danville, 111.). The latter 
companies were also in substantial competition with Breakstone Bros. 

" These' were Whiting Milk Co., second largest distributor of fluid milk in Boston (ad u- 
ally under control of National Dairy Products since 1936 through a voting trust agree- 
ment) and Bryant & Chapman Co. of Hartford. Earlier (in 1930) National Dairy acquired 
the R. G. Miller & Sons Co., Inc., second largest distributor in Hartford. 



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Chart 8 



HORIZONTAL AND OTHER ACQUISITIONS OF THE BORDEN CO.. 1940-47 



BOCKSTRA DAIRY PRODUCTS 
CO., 

Grand Rapids, Mich. 
1940 



HOME ICE CREAM AND ICE CO.; 
East St. Louis, lU. 
1M4 



HORIZONTAL- 



(Dairy products: MilK, Ice Creom. etc.) 



CAPITAL DAIRIES, INC. 
Indianapolis, Ind. 
1940 



KENNEDY DAIRY CO., 
BunUngton, W. Va. 
1940 



SUNSHINE FARMS, INC., 
BrouK, N. Y. 
1»44 



WHITE HOUSE ICE CREAM CO., 
INC., 

Cambridge, Mass. 
1941 



TECH FOOD PRODUCTS CO., 
Pittsburgh, Pa. 
1944 



DOUBLE DIP ICE CREAM CO., 
New Orleans, La. 
1943 



ARNOLD ICE CREAM CO., 
Yorl^ Pa. 

1945 



PURITY ICE CREAM CO., 
Dothan, Ala. 

1945 



CONGLOMERATE 

Sordines a Fish Oil Soy Bean Products 



FARALLONE PACKING CO., 
San Francisco, Calil. 
1941 



SOY BEAN PROCESSING CO., 
Waterloo, Iowa 

1943 



Ptwrmoceuticols 






W. F. STRAUB & CO 
Chicago, m. 
1945 




SOY BEAN PRODUCTS CO., 
Chicago, III. 

1945 





BORDEN CO. 



VERTICAL FORWARD 



i 



TEXAS MI ..K PRODUCTS CO., 
Marshall, Texas 
1943 


V 


TYLER MILK PRODUCTS CO., 
Tyler, Texas 

1943 



PAWLET CREAMERY CORP., 
West Pawlet, Vt. 
1943 



POINSETTIA DAIRY PRODUCTS 

INC., 

Tampa, Fla. 

1943 



ROYAL PALM CREAMERY, and 
ROYAL PALM DAIRY, INC., 
Miami, FU. 

1945 



J_ 



SNOW KITE CREAMERIES, 
Midland, Texas 
1945 



ARCADIA-NESS, 
Bilaxi, Miss. 
1944 



WILUAMS-MC WILLIAMS 
DAIRY PRODUCTS CO., 
Grand Rapids, Mich. 
1945 



BROOKSIDE DAIRY, INC., 
Quebec, Canada 
1944 



SOUTHERN DAIRY PRODUCTS, 
INC., 

1946 



CONGLOMERATE 







Pet Foods 


TYKOR PRODUCTS, INC., 
1946 




ARMSTRONG FOOD CO., 
1946 









Plostics Mote rials 


FORBES LABORATORIES, INC., 
1946 




DURITE PLASTICS, INC., 
PMUdelphia, Pa. 
1947 





DAIRYBELT CHEESE AND 
BUTTER CO., 
Junction City, Wis. 
1944 



WEBER MILKCO., 
Indianapolis, Ind. 
1946 



.SOURCE: BASED UPON ACTIONS REPORTED BY MOODY'S INVESTORS SERVICE AND STANDARD AND POOR'S CORPORATION 



795355 O - 48 (Face p. 40) 



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THE MERGER MOVEMENT 



41 



made a number of conglomerate and forward-vertical acquisitions 
as well. Its major acquisitions in the dairy products field carried it 
deeper into such widely disparate geographical areas as Michigan, 
Indiana, West Virginia, Massachusetts, Louisiana, Vermont, Missis- 
sippi, Illinois, New York, Pennsylvania, and Texas. Among the most 
important of its recent acquisitions were Poinsettia Dairy Products, 
Inc., of Tampa, Fla., and the Royal Palms Creamery and the Royal 
Palms Dairy in Miami, Fla. As the chart indictes, Borden's con- 
glomerate acquisitions have brought into the fold such unrelated 
products as sardines and fish oil, soybean products, pharmaceuticals, 
plastic materials, and pet foods. 

VERTICAL ACQUISITIONS 

(1) Forward Vertical Acquisitions — Steel 

Few types of acquisitions are more important from the viewpoint 
of economic concentration than the expansion of raw material pro- 
ducers into the production of various types of fabricated or finished 
ijfoods, sin^e the raw material firnis are generally much larger in size 
than the typical concern in the fabricated fields. In the current 
movement, this type of acquisition has been particularly conspicuous 
in the steel industry. Since World War II the Nation's largest steel 
producers have extended themselves into such fabricating fields as 
steel drums, bridge construction, oil-field equipment, wire products, 
prefabricated housing, as well as many others. 

Although steel producers have been engaged in this practice of 
buying up their customers since the earliest days of the industry, this 
form of expansion remained fairly limited in scope until the 1930's. 
Prior to that time the energies of the steel producers in promoting 
mergers had largely been expended in bringing together other steel 
companies — i. e., horizontal mergers — and in acquiring their own 
sources of iron ore, coal, and related products — i. e., backward verti- 
cal acquisitions. In commenting on their apparent disinclination to 
enter the fabricating fields, one prominent writer on corporate finance 
stated in 1930 that : 

Vertical consolidation in the steel industry stopped with the raw material 
of other industries. The steel corporation sells its products to machine tool 
builders, building erectors, automobile manufacturers, manufacturers of agri- 
cultural machinery, railroads, public utilities, and a variety of other industries 
which use steel as raw material of their operations. The Steel Corp. has not, 
however, gone into these industries either to own or operate. It stops short at 
the line of rails, sheets, plates, billets, wire, and structural shapes." 








a 






^* E. S, Mead, Corporation Finance, D. Appleton & Co., New York, 1930, p. 460. 



42 



REPORT OF FEDERAL TRADE COMMISSION 




I 



II 



ll 




While a great deal of attention has been given to the original forma- 
tion of the United States Steel Corp. and its subsequent acquisitions 
of other steel companies, such as tlie Tennessee Coal, Iron & Eailroad 
Co., its gradual intrusion into the fabricating fields has escaped gen- 
eral notice. As a matter of record. United States Steel extend(id it- 
self, through acquisitions, into the manufacture of end-products as 
early as 1924 with the purchase of the Cyclone Fence Co. Four years 
later it acquired the Northwest Fence and Wire Works. 

But it was not until 1930 that this forward movement really l:>egan 
to gather momentum. In that year the Corporation purchased (1) 
the Columbia Steel Corp., a large steel-producing plant on the west 
coast, and (2) the Oil Well Supply Co., one of the largest established 
organizations in its field. This latter firm, with offices located through- 
out the United States and in foreign countries, not only dealt in steel 
pipe, wire rope, and similar products, but also produced and handled 
a complete line of finished equipment and machinery used in develop- 
ing and operating gas and oil properties. 

From fences and oil-well equipment the Corporation expanded its 
operations in bridge building, a field in which it had been engaged 
since 1901 through its subsidiary, the American Bridge Co. In 1936 
it purchased the Virginia Bridge Co., formerly one of its principal 
customers for structural steel and other bridge-building materials. 
At about the same time, it also purchased the Gerrard Co., Inc., a 
manufacturer of machines for tying containers witli wire. 

Also in the thirties, the Corporation strengthened its position in the 
cement industry, a field in which it had operated since 1906, when it 
had taken over the Universal Portland Cement Co. With th<i ac- 
quisition of the Atlas Portland Cement Co. in 1930, United States 
Steel became the largest cement producer in the country, with over 14 
percent of the Nation's capacity and considerably higher percentages 
in the regions where it maintained production facilities. 

The almost continuous movement by United States Steel into fabri- 
cating fields in recent years is illustrated in the accompanying chart 
(Chart 9), which shows not only its acquisitions of other companies 
but also its purchases of surplus war plants. Among the companies 
which it has purchased since 1939 are three steel drum firms, another 
oil-well equipment company, a pump manufacturer, an additional 
cement company, a wire cloth fabricator, another small steel firm, and 
a prefabricated housing company. Finally, the Corporation acquired 
the Consolidated Steel Corp., a leading fabricator of structural steel, 
plates, boilers, towers, gates, oil-refining equipment, bridges, truck 
bodies, etc., with its principal offices located at Los Angeles. Itself a 





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THE MERGER MOVEMENT 



43 



product of numerous earlier mergers and consolidations (as its name 
implies), Consolidated Steel operated shipyards on the west coast and 
in Texas during the war. In the Pacific coast region it is the largest 
producer of pipe and is second only to United States Steel in the pro- 
duction of fabricated structural steel products.^^ r^i^g Department of 
Justice moved to prevent this acquisition, alleging that it constituted 
a violation of the Sherman Antitrust Act. Judge Richard C. Rodney, 
in the Delaware District Court, held against the Department, and was 
upheld by a five-to-four decision of the United States Supreme Court.^^ 
United States Steel has not been the only basic steel producer to 
expand into the fabricating fields. Since its inception in 1904, Beth- 
iehem Steel Corp. has been heavily engaged in at least one such activ- 
ity, the shipbuilding industry. But as in the case of United States 
Steel, it was not until the early thirties that Bethlehem began a vig- 
orous expansion into other fabricating fields. 

The rise of Bethlehem Steel to the position of the second largest 
steel company has been marked by numerous mergers and acquisitions, 
few of wj iich, however, were of the forward vertical type until 193 0. 
Perhaps its most dramatic entry into the fabricating fields (aside fr^in 
shipbuilding) occurred in 1931, with its purchase of the McClintic- 
Marshall Corp., a firm which was fully equipped for the construction 
of bridges, buildings, tanks, river barges, etc. Today, Bethlehem 
holds approximately 13.5 percent of the industry's ingot capacity: it 
IS the largest fabricator and erector of structural steel, the leading 
shipbuilder in the country, and is clearly preponderant in the steel 
trade in much of the northeastern section of the United States. 

Bethlehem's acquisition drive has been greatly accelerated since 
World War II ; it has purchased 12 other companies and 8 surplus 
war plants. Included among these acquisitions are such fabricating 
companies as two steel drum firms (including the purchase of 28.9 
perce nt of t he stock of the extremely important Rheem Manufacturing 

=« As an indication of the importance of Consolidated Steel Corp. in the production of 
pipe, as of April 30, 1947, the firm had a $90 million backlog of orders on its books It 
produces 200,000 tons to 300,000 tons of large diameter pipe a year, which is as much as 
National Tube (United States Steel subsidiary) produces in the western region In addi- 
lon Consolidated was the largest independent fabricator of plate on the West Coast 
n terms of fabricated structural products, Consolidated units have approximately 11 
percent of the sales in 11 Western States, compared with 13 percent for United States 
t^teel Corp. and approximately 11 percent for Bethlehem Steel Corp. 

aco'^uLftJ; ^J^^mftia Steel Co., No. 461 (Sup. Ct. June 7. 1948). In addition to its recent 
acquisitions of other companies, the Steel Corp. has also purchased a number of surplus 
uZf fl /T *^^. ^^'^" ^'^''*' Administration, including the fully integrated Geneva steel 
plant the stee works and rolling mill at Homestead, Pa., the blast furnaces at Braddock 
lent^t^lZfT^ ^f heat-treating facilities at Duquesne, Pa., blast-furnace equip! 



u 




795355 — 48- 



-4 



44 



REPORT OF FEDERAL TRADE COMMISSION 




Co.),-* three concerns in the oil-well equipment field, two shipyards, 
a forge company, and a tank company. 

Kepublic Steel Corp., third largest steel producer in the country 
and leading producer of alloys, owes by far the greater part of its 
growth to external expansion. The present Kepublic Steel Corp. 
emerged as a consolidation in 1930 of four major companies — Republic 
Iron and Steel, Bourne-Fuller Co., Donner Steel Co., Inc., and Central 
Alloy Steel Co. The program of consolidation was to have gone 
further to include Youngstown Sheet and Tube, an important factor 
in sheet, tin plate and pipe, and the Inland Steel Corp., second largest 
steel maker in the Chicago area and seventh largest in the country. 
That ambition, ardently championed by Cyrus S. Eaton, vras 
thwarted, first by the intervention of Bethlehem in an attempt to merge 
with Youngstown, and second by the collapse of certain of Mr. Eaton's 
investment companies during the great depression. 

Following Bethlehem's similar action by only one year, Republic 
entered the fabricating field on a large scale in 1937 with the purchase 
of the Niles Steel Products Co., one of the Nation's principal producers 
of steel containers. 

But this was only a prelude. Since 1939 Republic's acquisitions in 
the fabricating fields have included a producer of steel drums, a manu- 
facturer of wire and screen, a drawn steel company, a metal window 
firm, and a culvert company. In addition. Republic has moved back- 
ward into the raw materials field by acquiring two iron ore companies, 
two coal companies, and the blast furnace of a small company located 
in Troy, N. Y. While three of the four surplus properties which it 
acquired from the disposal agencies are of relatively minor importance, 
its purchase of a huge integrated surplus war plant in South Chicago, 
111., gives it the largest electric steel mill in the world. By obtaining 
this vast plant, which was built at a cost of $91 million (at wartime 
values) and sold to Republic for $35 million (payable over a period 
of 20 years). Republic has increased its position from the fourth to 
the largest electric steel producer in the Nation.^^ 

" In a letter to Iron Age (July 10, 1943, issue, p. 94) C. V. Coons, general sales manager 
of Rheem Manufacturing Co., stated that Bethlehem does not control his company. Elow- 
ever, it is to be noted that Bethlehem owns 29 percent of Rheem's common stock, and, in 
addition, transferred to Rheem the ownership of its own steel drum plant at Bayonne, N. J., 
which it had purchased from the Atlas Steel Barrel Corp. in December 1943. 

Rheem itself has recently acquired a number of other companies. Early in 1944 it pur- 
chased a large stock Interest in the Platt-LePage Aircraft Co., a helicopter manufacturer, 
and also secured the right to use the latter company's designs and patents. Also in 1944, 
Rheem bought certain assets of Stokermatic Co., a manufacturer of automatic stokers and 
water heaters. In 1946, it purchased the small motors division of the Reulaii4 Electric 
Co., and in January 1947 it purchased the Eraser Furnace Co., located in Stockton, Calif, 

=* Moreover, the capacity of the South Chicago plant is tremendous. Republic's electric 
steel capacity alone is now greater than the entire industry's prewar capacity. With any 
substantial decline in the demand for alloy steel, the smaller producers will face a serious 
problem in trying to hold any appreciable share of a declining market against this capacity 
of Republic. 



THE MERGER MOVEMENT 



45 



Jones & Laughlin Steel Corp., second largest steel producer in the 
Pittsburgh area and fourth largest in the United States, traces its 
ancestry back to a partnership organization in 1850. The Corpora- 
tion's operations are completely integrated; its coal properties are 
estimated to be capable of supplying all of the company's requirements 
for more than 50 years; and only about 20 percent of its iron-ore re- 
quirements are purchased from outside sources. The outstanding 
characteristic of the company's expansion program in recent decades 
has been a broad movement into various steel fabricating fields, in- 
cluding oil-field equipment, the erection of bridges, buildings and other 
structures, and the manufacture of steel drums. 

Although Jones & Laughlin made a few forward vertical acquisi- 
tions during the late twenties, its program of external expansion did 
not gather momentum until the thirties, thus paralleling the timing 
of the other major steel companies. In July 1931, Jones & Laughlin 
acquired the entire capital stock of Louisiana Erecting Co., Inc., a 
subsidiary of Lukens Steel. This acquisition was followed 3 years 
later by the purchase of the Roy L. Brower Corp. of New York City, a 
jobber in nails. In 1935, Jones & Laughlin acquired the assets of 
National Bridge Works of Long Island City, N. Y. In more recent 
years it has added to its fabricating facilities by purchasing two steel 
drum companies, the Wackman Welded Ware Co. in 1942 and the 
Draper Manufacturing Co. in 1944. 

In addition to these forward vertical acquisitions of steel drum 
companies, Jones & Laughlin has acquired since 1939 an integrated 
stee] company, a coal company, the tin-plate mills of McKeesport 
Tin Plate Corp., and a tube plant. Moreover, it has purchased from 
the War Assets Administration an electrolytic tin-plate plant at 
Pittsburgh, as well as the equipment for bonderizing black plate at 
Aliquippa, Pa. By far the most important of these properties was 
the integrated steel firm, Otis Steel Co. in Cleveland, Ohio, purchased 
in Jtme 1942, for $35 million, and consisting of coke, pig iron, blast 
furnace, open hearth, and steel finishing capacity, including con- 
tinuous rolling mills and other equipment for the production of sheet, 
strip, and plate steel. 

Among the more important forward vertical acquisitions made by 
other steel companies may be numbered the following : (1) The Emsco 
Derrick and Equipment Co., a manufacturer of steel derricks, a 
complete line of oil well drilling and pumping equipment, and other 
fabricated steel specialties, which was purchased in 1938 by Youngs- 
town Sheetr and Tube, (2) Joseph T. Ryerson & Son, Inc., leading 
factor in the steel warehousing field and operator of structural fab- 
ricating facilities, taken over by Inland Steel Co. in 1935, (3) The 



9 



I 






Ill '1 
ll 



Ill 



46 



REPORT OF FEDERAL TRADE COMMISSION 



Milcor Steel Co. and the J. M. and L. A. Osborn Co., both manu- 
facturers of steel building materials, purchased by Inland in 1936 
and (4) the Wilson & Bennett Manufacturing Co., a manufacturer 
of steel containers, also bought by Inland in 1939. 

This expansion into the fabricating fields by producers of basic 
raw materials has a continuing and cumulative effect on small busi- 
ness. For one thing, the expansion has proceeded so far as to result 
in the almost complete disappearance of what formerly have been 
regarded as typical small business industries. The recent absorption 
of practically the entire steel drum industry by the basic steel pro- 
ducers provides a striking example of this process, which has been 
succinctly described by Iron Age in the following words: 

Long, long ago, in 1939, before the words postwar and planning were wedded, 
the manufacture of heavy steel barrels and drums was a rather volatile business 
firmly in the hands of a large number of highly individualistic entrepreneurs. 
Most of these fabricators had started on a precarious shoestring and were justi- 
fiably vocal in their pride of success in the classical Horatio Alger Pluck and 
Luck Tradition. 

A few weeks ago, the purchase of Bennett Mfg. Co., Chicago, by the United 
States Steel Corp. pretty well completed the capture of the entire barrel and 
drum business by major steel producers. Some 87 percent of the business, 
representing about 435,500 tons of steel consumption yearly lias been corralled 
by the mills and the remaining 64,500 tons of independent capacity will probably 
remain so for a variety of reasons.'*' 

The effect of the intervention of basic steel companies into the steel 
drum and barrel business is indicated in Chart 10, which shows the 
percentage of the total heavy drum capacity held in 1946 by basic steel 
companies, for the country as a whole and for the Nation's individual 
regions. 

As will be noted, the country's leading steel producer is also the 
leading steel drmn producer. United States Steel shares the Paidfic 
coast region on a fifty-fifty basis with Bethlehem Steel ; it is the leading 
steel drum producer in the Houston and New Orleans areas ; and it is 
one of the leading producers in the Chicago and Cleveland-Pittsburgh 
regions. 

Bethlehem (through Rheem) not only divides the Pacific coast 
region with United States Steel, but also is the leading producer in 
the important Atlantic coast region, where it accounts for over 40 
percent of the steel drum production. In addition, it is an important 
factor in the Houston and Chicago areas. 

In the St. Louis area, there is only one basic steel producer enga,ged 
in the steel drum industry — Jones & Laughlin. In addition, this com- 
pany is second only to Bethlehem in the important Atlantic coast 

» The Iron Age, September 21, 1944, p. 103. 



THE MERGER MOVEMENT 



Chart 10 



47 



PERCENT OF TOTAL HEAVY STEEL DRUM CAPACITY 

HELD BY BASIC STEEL COMPANIES 

BY REGION. 1946. 

Percent of Total Capacity 1/ 



REGION 

TOTAL UNITED STATES 



PACIFIC COAST 



HOUSTON 



NEW ORLEANS 



ATLANTIC COAST 



CHICAGO 



CLEVELANO-RTTSBURGH 



ST LOUIS 






^ 



U. S. StMl Corp. 



Inland St«el Co. 



LEGEND 

Bethlehem Steel Corp. 
Republic Steel Corp. 



V777, 



'A Jones 8 Loughlin Steel Corp. 



Wheeling Steel Corp. 



Source: Compited from IRON AGE, S«pf 21, 1944, pl04 
"^ Bosed on Steel Re<juirements in 1944 



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48 



REPORT OF FEDERAL TRADE COMMISSION 



region and produces sizable tonnages of drums in the Houston, New 
Orleans, and Cleveland-Pittsburgh areas. 

Inland is the leading steel drum manufacturer in the Chicago area, 
while Republic is the leading producer in the Cleveland-Pittsburgh 
region — ^both firms confining their steel drum operations to a single 
geographic region. 

At the same time that some fields, such as the steel drum industry, 
have been taken over practically eti hloc^ other small fabricating fields 
have felt the effects of this forward expansion movement in a diff(5rent 
way, which, though less dramatic, is also destructive in its effecit on 
small business. Small concerns in these fields have been confronted 
by critical shortages of materials — shortages which have been seric>usly 
aggravated by the removal of materials from the open market and 
their shipment to the fabricating subsidiaries of the material producers. 

An illustration of this type of problem was provided before the 
Senate Small Business Committee, in the testimony of Frank Daerr, 
general manager of the Troop Water Heater Co. of Pittsburgh — 
a small firm employing from 60 to 100 people. Mr. Duerr testified 
that prior to VJ-day his company had n^f^^ experienoed-any difficulty 
in obtaining steel from his nearest industrial neighbor, the south-side 
plant of Jones & Laughlin Steel Corp. Although his past relation- 
ship with Jones & Laughlin had been, in Mr. Duerr's words, very 
pleasant, after VJ-day this company cut his sheet-steel quota by more 
than 50 percent. Later he was advised by Jones & Laughlin that 
"they could not furnish us any steel after January 1, 1947, because 
they were withdrawing from the sheet steel market," a withdrawal 
which, according to Mr. Dtierr, was d»e largely to the forward expan- 
sion by Jones & Laughlin into the steel drum industry. Aocording to 
Mr. Puerr, "It developed during the conversations that the steel we 
required will go to. their own recently acquired steel drum plani:.^ 

In some cases, the independent manufacturer who is unable to obtain 
materials, and the iabricating subsidiary of the material^ producer 
which receives ample supplies, are in direct competition with each 
other. This type of situation is illustrated by the hardships experi- 
enced by independent steel erectors after the forward expansion by 
basic steel companies, primarily United States Steel and Bethkihem 
Steel, into the fabricating and erection of structural steel.^® One of 
the first complaints made before the Senate Small Business Committee 

" 80th Cong., 1st sess., Senate Small Business Committee, Steel Supply and Distribution 
Problems Affecting Smaller Manufacturers and Users : IV, June 3, 4, and 5, 1947, pp. 907- 
908. 

^ In the past, most structural steel entering into construction work has traditionally 
been handled by three separate types of business organizations. The basic structural 
shapes were supplied by the large steel companies. These shapes then went to much 
smaller concerns, the so-called fabricators, who fabricated the individual shapes to epecifl- 



THE MERGER MOVEMENT 



49 



was that of an independent steel erector, Karl Koch of the Bronx, 
N. Y., who was prevented from bidding on the erection of Government 
hospitals in New York State by this inability to obtain the raw steel. 
The only bidders on the project turned out to be United States Steel 
and Bethlehem Steel, both of which were able to provide not only the 
raw steel but its fabrication and erection as well. In fact, one official 
of Bethlehem stated that his company would not bid on steel for these 
particular Government hospitals unless it could execute the complete 
job, which would include fabrication and erection.^^ 

Colonel Rockwell, of the Rockwell. Manufacturing Co.-, in testifying 
before the committee, outlined the logical consequences of this forward 
expansion by the raw material producers. 

It is obvious that, if the steel companies continue to enter into competition with 
their customers in the fabricating and in the steel-consuming manufacturing 
industries, we shall soon be competing with vertical trusts of the type which 
existed in Germany. 

When there is a slowing down of business, such steel companies will try to 
obtain business from the independent steel barrel manufacturers and other con- 
suflfiers [of steel] ; but, when business is expanding rapidly, such customers will 
be faced with a refusal to suppily steel at the very time when it is impossible to 
buy from other steel companies who are considerate enough to take care of their 
established customers. t_— ---^ — 

As far as we know, this is the first time in history that some steel companies 
have had a sustained demand, and, at the same time, have been in competition 
with their customers. They have, therefore, cut off some established customers 
in order to build up their own business in the steel-consuming manufacturing 
industries." 

(2) Backward Vertical Acquisitions 

Just as basic materials producers have expanded forward, acquiring 
fabricators of end products, so also have large fabricators moved back- 
ward, buying up raw material producers, the former being motivated 
largely by desire to secure the higher profit margins generally associ- 
ated with finished products, and the latter by the difficulty in obtaining 
supplies of tight materials. Both types of movement have tended to 
preempt the supplies of materials, components, parts, etc., available 

cations for large bridges, multi-story buildings, etc. These shapes were then transported 
t^o the job site and erected by another class of relatively small firms, the so-called erectors, 
which are specialized companies that work on subcontracts from the general construction 
contractors. 

» 80th Cong., 2d sess.. Steel Supply and Distribution Problems, Interim Report of the 
Special Committee to Study Problems of American Small Business, Senate Report No. 825, 
p. 10. "As a result of these hearings, the subcommittee was able to secure for all the 
independent erectors a revision of the Government b^d form which would enable them to 
}^.^^ ***® separate services on Government construction, and require the integrated com- 
panies to bid, separately, on each service to be rendered." 

*» 80th Cong., 2d sess.. Steel Supply and Distribution Problems, Interim Report of the 
Special Committee to Study Problems of American Small Business, Senate Report No 8'>5 
pp. 9-10. ^ . - , 



'/ 



! 

n 






I I 






3 






n 



i 




50; 



REPORT OF FEDERAL TRADE COMMISSION 



for small business. Through these vertical acquisitions, whole sectors 
of the economy have, in fact, become captive adjuncts of the large 
(fabricating companies. 

As an instance of the backward movement, a large number of im- 
portant manufacturers of various types of machinery have recently 
undertaken many of the activities formerly performed by subcon- 
tractors. In order to do this, they have purchased firms producing 
tool and die shop products, metal stampings, screw machine products, 
etc. For example, Whiting Machine Works, one of the largest textile 
machinery companies, bought Fay & Scott, machine tool manufac- 
turers; Republic Industries Corp., manufacturer of aircraft engines, 
purchased Geometric Stamping Co., auto and washing machine parts; 
and American Chain & Cable Co. acquired the Maryland Bolt & Nut 
Co. In many cases the products formerly supplied by these independ- 
ent manufacturers will not be available to outsiders as long as the 
seller's market continues and the shortages persist. 

Automobile manufacturers have purchased iron and steel foundries 
and other suppliers of automobile equipment, including producers of 
drop forgings. Railroad equipment firms have taken over organiza- 
tions producing steel castings, high-temperature castings, alloys, 
pumps, etc.^^ In the electrical machinery industry, manufacturers 
have reached backward to take over firms producing such items as 
magnesium alloys, wire, and plastics.^^ The extreme shortages have 
/ied to a scramble for widely-used components, resulting in numerous 
I acquisitions by large companies of producers of motors, electric gen- 
\erators, superchargers, pressure gages, heating control instruments. 



fete. 



33 



" For example, General American Transportation Corp., owner and operator of a large 
fleet of tank cars, as well as builder of railroad cars, acquired the Petroleum Iron Works 
Co. (Sharon, Pa.), a majaufacturer of heavy welded steel equipment used in the cooaIeuiC- 
tion of tank cars. H. K. Porter, Inc., a producer of switch and industrial locomotives, 
acquired three companies making parts that could be used in its locomotives. These 
included two railroad car spring manufacturers (Fort Pitt Spring Co. and the American 
Spiral Spring & Manufacturing Co.) and a company making the wearing parts for locomo- 
tive brakes (Brake Equipment & Supply Co.). 

*» This type of vertical backward acquisition has been especially evident among radio 
manufacturers, who have bought a number of companies making radio parts. Emerson 
Radio and Phonograph acquired Radio Speakers, Inc. and Plastimold Corp. (a maker of 
plastic radio cabinets) ; Hallicrafters Co., making radio and communications equipnent, 
acquired Electronics Winding Co. ; Admiral Corp., a manufacturer of radio and phonogi-aph 
combination (as well as refrigerators) purchased the Chicago Cabinet Corp., manufac- 
turer of console cabinets. 

^ For example, the Hoover Co., a leading producer of vacuum cleaners, acquired the 
Kingston-Conley Electric Co., manufacturer of fractional horsepower motors. Worthing- 
ton Pump &. Machinery Corp., acciuired the Electric !&^kGhiBery-Maau£aeturiB^-Coii'W)rieh, 
in addition to electric motors, manufactures generators and controlling devices. Borg- 
Warner acquired the McCollock Engineering Co., producing superchargers ; National I'res- 
sure Cooker Co. acquired the La Crosse Products Corp., manufacturer of all types of 
pressure gages ; and Iron Fireman Manufacturing Co., manufacturer of automatic coal 
stokers, oil burners, etc., purchased the L. R. Teeple Co., makers of automatic heatins 
control instruments. 



THE MERGER MOVEMENT 



51 



In another branch of manufacturing, a number of large paper com- 
panies have reached back to acquire producers of pulp, and more par- 
ticularly, to buy up large stands of timber. (For example, St. Kegis 
Paper Co. purchased the West Fork Timber Co. and the North Bend 
Timber Co., both logging operators in Washington State. Kim- 
berly-Clark Corp. acquired the Pulp Wood Co.). Similarly, lumber 
manufacturers made backward acquisitions involving the absorption 
of timber and logging firms. (Weyerhauser Timber Co. acquired 
the Drew Timber Co. and the Coos Bay Logging Co. Long-Bell 
Lumber Co. purchased, among others, the Oak Park Lumber Co. and 
the Austa Lumber Co.). At the same time, several prominent mag- 
azine publishers have attempted to guarantee their paper supply by 
buying up paper mills. Subsequently, some of these mills were re- 
sold to other large paper companies in return for long-term supply 
contracts stipulating a continued flow of paper over a period of sev- 
eral years.^* 

In the petroleum industry, the large integrated companies have 
been particularly active in acquiring crude-oil producers and have 
also picked up a number of strategically located pipe lines.^** Finally, 
the purchase of a number of steel sheet producers by large fabricators 
has seriously reduced the supply of this critical material available 
for small fabricating firms. Outstanding examples of this were the 
purchases of the Mahoning Valley Steel Co. by General Electric, the 
Superior Sheet Steel Co. by Borg- Warner Corp., the Andrews St^el 
Co. by International Detrola Corp. and the Empire Steel Corp. by 
Studebaker Corp. In addition, Kaiser-Frazer Corp, bought, first, 
the integra.ted Portsmouth plant of the Wheeling Steel Corp. and 
then the Indiana rolling mill of Continental Steel Corp.^s 

Acquisitions of this character led the Senate Small Business Com- 
mittee to comment : 

♦kT ^^^ outstanding example is Time, Inc., which bought three paper mills, later reselling 
them to St. Regis Paper Co. and then contracting for a supply of paper over a long period 
with St. R6gis. National Geographic Society obtained a majority of the stock of 
Champion-International Co.; Hearst Consolidated Publications bought the Pejepscot 
Paper Co. 

^ Standard of New Jersey, through a subsidiary, acquired the Leader OU Co., Tulsa, Okla 
and the Minnelusa Oil Corp., Denver, Colo., both crude producers, as well as the Yale Oil 
Corp., a refiner and distributor owning wells in the Elk Basin. It also acquired the pipe- 
line properties of Standard Oil of Louisiana. Texas Corp. acquired the Marvel OU Co., a 
Wyoming crude producer, and seven other oil-producing properties. 
J« Hudson Motor Co. leased from the War Assets Administration two-thirds of the former 
^henango tin-plate mill to produce steel sheets for automobile bodies. Formerly owned 
by the Carnegie-Illinois Steel Corp., the latter plant had been converted to the production of 
aluminum forgings during the war. In other branches of the iron and steel industry. 
VVUljs-Overland Motors, Inc., acquired a gray-iron casting plant ; a syndicate of 25 com- 
panies, including Atlas Tack Corp., Gibson Refrigerator Co., and others, acquired Phoenix 
iron Co. ; and three companies, Lukens Steel Co., Worth Steel Co., and Warren Pipe & 
foundry Corp., purchased stock control of E. & G. Brooke Iron Co. Kaiser-Frazer Corp 
purchased an idle blast furnace at Struthers, Ohio, and put it into operation in the latter 



! 













,r' 






I' 



i[\ 



, 



52 



REPORT OF FEDERAL TRADE COMMISSION 



IMI' 



Regardless of whether the integration movement is across the board or up| 
and down in the steel industry, the results to the smaller business man are equially 
devastating in the removal of his source of supply. 

The purchase of steel-producing facilities by large manufacturers of siteel 
products in order to assure themselves of a source of steel is another angle 
of the integi'ation movement. As one example, the purchase of the Mahoalng 
Valley Steel Co. by General Electric Co., to assure Mahoning's full production 
for General Electric, has left such customers as the Corry-Janiestcnon £^ de,- 
pendent upon grmj-rnarket steeV^ 

One of the most striking illustrations of backward vertical ac<iui- 
sitions is provided by the recent activities of the country's seooi^d 
largest grocery chain, Safeway Stores — an organization which owes 
most of its growth to acquisitions of one type or another. According 
to Merrill Lynch, Pierce, Fenner & Beane, brokerage house,^ "A 
predecessor company had its origin in four grocery stores established 
in 1914 in Los Angeles, but geographical expansion through accjui • 
sition of various going organizations and installation of new units 
has had an eastward bent since incorporation of the present company 
in 1926." 3« 

Until recent years, most of Safeway's acquisitions were horizontal 
in character, consisting of the purchase of other chain stores. Thus 
the company's operations in southern California were greatly en- 
larged through the acquisition of the H. G. Chaffee Co. chain (vrith 
83 stores). This step was soon followed by the purchase of the 
Skagges chain, which carried Safeway into other Western States. 
In 1928 and 1929, the company acquired two additional chains in 
California, and another chain operating in Arizona (Arizona Grocery 
Co. and its subsidiary. Pay 'n' Takit Stores, Inc.). It then moved 
eastward to buy out the Sun Grocery Co. in Tulsa, Okla., as well as the 
Bird Grocery Stores, Inc. (operating under the Piggly Wiggly 
system) in Kansas City, Mo. It then moved to the east coast, buying 
out the large Sanitary chain (Washington, D. C.) and Eastern Stores, 
Inc. (Baltimore, Md.). Finally, it began operations north of the 
Canadian border by acquiring a chain of stores and a wholesale grocery 
business in the western provinces. By 1931 Safeway had surpassed 
the Kroger Co. in sales and was rapidly gaining ground on the Great 
Atlantic & Pacific Tea Co., the country's leading grocery chain. In 
1947, with 2,442 stores in 23 States, the District of Columbia, and 

"80th Cong., 2d sess., Interim Report of the Special Committee to Study Problems of| 
American Small Business, U, S. Senate, "Steel Supply and Distribution Problems," p. 9, 
Italics added. 

"According to the SEC, in 1938 the Merrill and Lynch families, and companies jointly! 
controlled by them, held 19.15 percent of the common stock of Safeway Stores, Inc., \<hich[ 
made them the principal owner of Safeway. (Cf. TNEC Monograph No. 29, p. 1495.) 

•» Merrill Lynch, Pierce, Fenner & Beane, Chain Stores, 1946, p. 25. 



Chart II 



BACKWARD VERTICAL AND OTHER ACQUISITIONS OF SAFEWAY STORES. INC.. 



1940-47 



MEAT PACKING COMPANIES 



NEBRASKA BEEF CO., 
Omaha, Nebr. 
1»43 



SWANSTON PACKING CO., 
Sacramento, Calif. 
1M3 



DRUMlfON PACKING CO., 
Eau Clair, Wis. 
1945 



HUTCHINSON PACKING CO., 
Hutchinson, Kans. 
1945 



A 



o 
< 

o 

< 

CD 



< 

o 

UJ 



HURLEY PACKING CO., 
Phoeoiz, Ariz. 
1943 



SOUTH SAN FRANCISCO PACK- 
ING t PROVISION CO., 
San Francisco, Calif. 
1944 





1 


\ 




ACME PACKING h PROVISION 
CO., INC., 
S«atUe, Wash. 

1944 






EL PASO PACKING CO., 
El Paso, Texas 
1944 

















1 


\ 




ELBURN PACKING CO., 
Elburn, lU. 

1944 




STERUNG MEAT CORP.,. 
Vernon, Calif. 
1945 







WRIGHT & RATTERSON, INC., 
Dallas, Texas 

1945 



MISSOURI PACKING CO., 
Joplin, Mo. 

1946 



HORIZONTAL 



DANIEL REEVES, INC., 

New York, N. Y. 

(498 stores, mainly in New York 

City) 

1941 



CHEESE FIRMS 



CENTRAL CHEESE CO., 
Marathon, Wis. 
1944 



LUNDY CHEESE FACTORY, 
Myrtle Point, Oreg. 
1945 



RUMIANO BROS., 
Myrtle Point, Oreg. 
1945 



SQUARE DEAL CHEESE 
FACTORY, 
Seymour, Wis. 
1946 



SWAMP CREEK CHEESE, 
FACTORY 
Algoma, Wis. 
1946 



MAPLEWOOD DAIRY, 
Sawyer, Wis. 
1946 



CLOVERLEAF CHEESE 
FACTORY, 
Sawyer, Wis. 
1946 



GOLDFIELD CHEESE FACTORY, 
Pound, Wis. 

1946 



a 



I 



,i 



o 

O 
< 
CD 



-J 
< 
O 

UJ 



FAIRVIEW CHEESE FACTORY, 
Pulaski, Wis. 

1945 



BROADBENT CREAMERY CO., 
Broadbent, Oreg. 
1945 



SHADY LAWN CHEESE 
FACTORY, 
Appleton, Wis. 
1946 



RANKIN CHEESE FACTORY, 
Algoma, Wis. 

1946 



ELMWOOD CHEESE FACTORY, 
Little Suamico, Wis. 
1946 



GRAND VIEW CHEESE 
FACTORY, 
Oconto County, Wis. 
1946 



ROSEWOOD CHEESE FACTC»Y, 
Algoma, Wis. 

1946 



SAFEWAY STORES. INC. 



BUTTER FIRMS 



PRAIRIE FARM CREAMERY 
CO., 

Prairie Farm, Wis. 
1945 



COTTAGE CREAMERY CO., 
Durand, Wis. 

1945 



PRESCOTT CREAMERY CO., 
Prescott, Wis. 

1945 



ROCK FALLS COOPERATIVE 
CREAMERY, 
Rock Falls, Wis. 
1945 



GOLD COIN CREAMERY CO., 
Denver, Colo. 

1945 



SPRING VALLEY CREAMERY 
CORP., 

Sprii« VaUey, Wis. 
1945 



DALLAS CREAMERY, 
Dallas, Wis. 
1945 



SOUTHERN BUTTER CO., 
Muskogee, Okla. 

i»4e 



l\ 



BAKERY 




GELATIN DESSERT 



JELL-WELL DESSERT CO. 



OTHER 



SALEM COMMODITIES, INC., 
1947 



o 
q: 
< 

o 
< 

CD 

< 
O 

q: 

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HORIZONTAL 



NATIONAL GROCERY CO., 
(454 stores, mostly in New 
Jersey) 

1941 



TOTEM STORES, INC., 
(14 stores in Washington State) 
1942 



SOURCE. ff/iS£D UPON ACTIONS REPORTED BY MOODY'S INVESTORS SERVICE AND STANDARD AND POOR'S CORPORATION 



795355 O - 48 (Face p. 53) 



THE MERGER MOVEMENT 



53 



Canada, it was the Nation's second largest retailer of grocery products, 
the largest in point of sales in the Pacific, Western, and Mountain 
States, and one of the dominant chains in the South Atlantic States. 
In recent 3^ears, however, its horizontal purchases of other chains 
have been largely superseded by its backward -r**i2fir>pl ongipcitj^^^^ ^f 
processors of food and related products. Most of the big grocery 
chains, Safeway included, have for many yearg- upcraled tlitili ' uW n 
warehouses and per formed most of the wholesaling fm ictions. More- 
over, it has been common practice for them to own bread bakeries, to 
have their own dairy subsidiaries, to process coffee, and to import 
tea. Beginning in 1943, however, Safeway accelerated its backward 
acquisition movement, and bought up firms in a wide range of food 
processing fields, including meat-packing, butter, cheese, and other 
operations. 

As the accompanying chart (Chart 11) shows, in 1941 and 1942 Safe- 
way had carried its cross-country acquisition drive into New York 
City and New Jersey through the purchase of two sizable grocery 
chains in those areas. At the same time, a thi^ acquisition gave 
it a small chain in Washington State. Immediately thereafter, Safe- 
way reached back into manufacturing and purchased 12 meat slaugh- 
tering plants in such widely separated areas as Illinois, Wisconsin, 
Nebraska, Missouri, Kansas, Arizona, Texas, California, and 
Washington. 

It also acquired 15 cheese-making plants,*** all but three of which 
were located in Wisconsin; it purchased eight butter firms, one fish- 
processing plant, one poultry-processing plant, one nonalcoholic bever- 
age plant, one biscuit and cracker company, one cake and cookie com- 
pany, and one dessert-powder plant. 

During the first half of 1945, when meat supplies were severely 
i-estricted, Satf eway obtained over 30 percent of its total supply from its 
own meat-packing plants. This undoubtedly was an abnormally high 
percentage (the corresponding figure had been 11 percent during the 
first half of 1944), but it suggests the importance of Safeway's acqui- 
si tions in t he meat-packing industry.*^ In addition to the operation 

« Figures for cheese plants do not include 6 cheese plants leased for periods of a few 
months but do include 4 cheese plants which have now been closed.; the 12 meat-packing 
Plants include 4 packing plants which have now been closed. (The figures were presented 
Dy bafeway Stores before the House Judiciary Subcommittee, op. cit, p. 124.) One meat- 
Packing plant, formerly Drummon Packing Co., at Eau Claire, Wis., was resold in 1947 to 
■armour & Co. 

rpr^.^i^^l"***"^ *^** ^^ ''®^*°* acquisitions have not "in any sense lessened competition, 
daf; f!f !^ trade, or tended to create a monopoly," Safeway Stores, Inc., has submitted 
for 1 !l^ ^"^ Judiciary Committee allegedly showing that the acquired firms account 
r less than 1 percent of the country's total meat, cheese, and butter production. The 
S«w"*' ^^""^^^ "'*"* ^° *^^ *'*'''^ ""^ gelatins and dessert powders, the plant acquired by 
senf,. .•'*^^?'''^"^^ approximately 3 percent of the national output. These figures repre- 
national totals, and the percentages would be substantially higher in a number of 




I 'I 





54 



REPORT OF FEDERAL TRADE COMMISSION 



of meat-slaughter plants, the firm's procurement activities have also 
been extended to livestock buying and feeding. Safeway has publicly 
stated, however, that it "has not, and will not, enter into the business 
of animal production" and that as soon as it secures a sufficient number 
of fed stock to maintain its supply plant operations, "Safeway will 
discontinue the feeding of cattle * '^ 



* 42 



(3) Two- Way Vertical Acjquisitions — Textiles 

It frequently happens during periods of intensive merger activity 
that, in a given industry, raw material producers will-expand fer^s^^ard 
into the finished products field, while manufacturers of the finished 
products are at the same time expanding backward into the produ(;tion 
of raw materials, thereby forming a two-way pattern of vertical expan- 
sion. The classic example of this two-way tendency is to be found in 
the experience of Andrew Carnegie and the National Tube Co. bei ore 
the turn of the century. Around 1890 there existed a rough division of 
the steel industry between the makers of basic and semifinished steel 
(including Andrew Carnegie) on the one hand, and the producers 
of the more highly finished steel products (including the National 
Tube Co.) on the other. While the former group had expanded back- 
ward, through mergers, into some of the prior processes of mining and 
shipbuilding, and the latter group had made many horizontal mergers 
involving other producers of finished steel products, neither of the two 
groups had seriously invaded the other^s domain. 

But all this came to an end when in 1900 the National Tube Co. 
decided to expand backward into the production of basic steel and 
to cease purchasing from the Carnegie Co. Carnegie responded 
dramatically by threatening to erect the largest tube works in the 
world. This imminent conflict was one of the many important forces 
behind the formation of the United States Steel Corp., which brought 
together not merely these two firms but numerous other organizations 
that were actually or potentially competitive With each other. 

A modern example of this type of movement is that which has 
occurred in recent years in the textile industry, a field in which the 
merger movement is nothing less than spectacular. According to 
the Cotton Textile Institute, in the years 1940-46, inclusive, appmxi- 

important regions. Safeway did not present any data showing the proportion c»f the 
supply held in any particular region or locality. (Cf. Hearings on H. R. 515. op. cit.. pp 
124-133.) As in the case of other acquisitions cited in this report, the Commission takes 
no position as to whether any individual acquisition or group of acquisitions constitutes 
a "substantial les^MVivg of competition or tendency to create a monopoly." Such a deter 
mination can be made only after an examination Of the facts on a case-by-case basis. 
« Hearings on H. R. 515, p. 127. 



THE MERGER MOVEMENT 



55 



mately one-fifth of the productive facilities in the cotton-textile field 
changed ownership. The commonly recognized underlying causes of 
this wave of mergers were: (1) shortage of gray goods, caused by 
enormous demands during the war and the immediate postwar period ; 
(2) more favorable profit margins, particularly under wartime price 
controls, in the finished-goods lines; (3) consequent assumption of the 
finisliing operations by gray-goods mills; and (4) responsive efforts 
of converters, selling agents, dry goods wholesalers, etc., to gain access 
to gray goods through mergers. On the one hand, the basic producers 
of gray goods were expanding forward into the finishing operations, 
while on the other hand, the various fabricators engaged in the latter 
stages of operation were moving backward into the gray-goods field. 
Once the wa^e of mergers was under way, the movement had a cumu- 
lative impact — spreading from one branch of the industry to another.^^ 
The over-all impact of the movement on the structure of the cotton- 
textile industry is indicated in the following table prepared by the 
Cotton Textile Institute. 



Acquisition of cotton yarn and cloth mills, 19/f0-46 




Type of acquisition 


Number of 
spindles 


Percent of 
total spindle 
acquisitions 


New ownership 


1,050,088 
375, 756 
795, 088 

2,212,611 
679, 577 
665,616 
311,576 
277,096 
230,586 
48,160 


23.7 

8.5 

17.9 

49.9 

15.3 

15.0 

7.0 

6w3 

6.2 

1.1 


Machinery dealers (for resale) 


Horizontal-ootton mills 


Vertical '" "" 


Selling agents 


Converters... 


Cotton mills : "" 


Cutters 


End use, other than clothing 


Wholesalers. 




Total 


4,433,543 


100.0 





Source: Oottcm Textile Institute, as published in Hearings to Amend Sections 7 and 11 of the Clavton 
Act, op. at., p. 229. (Note.— Fifures have been corrected for minor discrepancies.) 

During the years 1940-46 inclusive, 164 cotton textile companies en- 
gaged in spinning or weaving, or both, changed ownership. These 
firms owned more than 4.4 million spindles and more than 88,000 
looms, or approximately one-fifth of the industry's productive f acili- 
|ties. According to the Cotton Textile Institute's figures half (49.9 
percent) of all the spindles that changed hands did so as a result of 
'vertical acquisitions. The most active purchasers were selling agents 
and converters, while cotton mills, cutters, and other end-use firms 
were also prominent. Approximately 18 percent of the mergers repre- 
sented outright horizontal combinations — one cotton mill buying 

enh ^^^^^ ^'^^^ ^^^ cotton-goods branch of the industry, the current wave of mergerg has 
nibraced rayon mills, hosiery mills, and many other branches of the textile trade. 






I 

in 

.0 
.9 




56 REPORT OF FEDERAL TRADE COMMISSION 

another. The remaining one-third of the acquisitions represented pur- 
chases of machinery by dealers for resale, or new ownership." 

A brief account of the recent mergers made by some of the leading 
textile firms may serve to illustrate the two-way character of the mer- 
ger movement in this industry. These examples include the expan- 
sions by Burlington Mills Corp. (basically a gray-goods manuf aetarer 
which has moved forward into the finishing field), M. Lowenstem & 
Sons (a prominent New York converter which has expanded back- 
ward by acquiring gi'ay-goods mills), J. P. Stevens & Co. Inc. (a 
leading sales agent which has also extended itself backward by ac- 
quiring gray-goods mills) , and Ely & Walker Dry Goods Co. (a dry- 
goods wholesaler which has likewise moved backward by purchasmg 

Cray-goods mills.) , ^ i 

Prior to the war, Burlington Mills was engaged m the manufacture 
of woven fabrics from rayon yarns and rayon mixtures, and to some 
extent from cotton yarns. It undertook some of the dyeing a:id 
finishing of the cloth and produced such end products as bedspreads 
and draperies. However, it also produced women's wear dress fab- 
rics and sold them in the gray to converters in New York City, who 
subsequently resold them in the finished state to the cutting-up trades. 
Burlington similarly sold such items as lining fabrics, corset cloths, 
and spun-rayon suiting for men's wear and underwear fabrics, m he 
gray to converters. Shortly before the war, the firm had begun the 

~^ In Dresentine these figures and in opposing the proposed amendment to see 7 of the 
ClaTtl let the Cotton Textile Institute oritioi.ed the «ommission-s inteTpretatlon of the 
Ivement Moreover" the Cotton Textile Institute took Uie P»f '»"♦''«' '^l^Xtit^st ' 
pZwon of competition is quite different from that envisaged in the Sherman Antitrust 

^'••withL"'rec™r;ea:s'::m;"e«.ion has come to have a different meaning from that w.ie,, 
prevailed at the passage of the Sherman Antitrust Act and which h- Pr^ajled m polu. a^ 

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but it is now related to comparative efficiency much more importantly than to flnanc.al 
Tn^repfrthe ComSsro'ltlted that the question of whether »' . -t any individuaj 

r."ra"d that Inch 1 analvsis is be/ond the scope of the Commissions existing resource J 
However in reference to the Cotton Textile Institute's concept of the "new compet.t.on, 

""HTry fantlfconcept hut the Federal Trade Commission stiU heiieves in prl.^ co J 
petlHon If Pric^ competition is disappearing. It i. vanishing because of he grow h of 
petition II pr " designed to arrest, and not because of any 'technical anil 

rcrtC'advancemen?; "M to beToped that such sCentiflc advancement will inters f^ 
rlther than eliminate price competition, which i» the automatic regulator of the freej 

'"V/'ZTcc^^' 1st sess Hearings to Amend Sections 7 and U of the Clayton Act 
be/o?e Sutomml'tee NO 2 of the Committee on the judiciary, House of Representadve., 
March- April 1947, pp. 224, 236, respectively.) 



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Chart 12 



VERTICAL AND OTHER ACQUISITIONS OF BURLINGTON MILLS CORP. 

1940—4-7 



BURLINGTON MILLS CORP. 



STAGE I. 



SPINNING AND WEAVING 



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RANLO MFG. CO., 
autonU, N. C. 
1»M 



MID-STATE CLOTH MILL, 
Red 4piii«, N. C. 
1»40 



SMITHHELD MFG. CO., 
SmiUiileldi, N. C. 
1941 



STAGE n. 



STAGE in 



VAMOCO MILLS 

FranUinton, N. C. 

1943 



ROBESON 1 EXTILES, INC., 
St. Pauls, N. C. 
1942 



STEELE MILLS, 
Rodcingham, N. C. 
1949 



DYEING AND FINISHING 



ARMCO FIMSfflNG COBS., 
Greensboro, N. C. 
1940 



DUPLEX FABRICS CORP.. 
New York, N. T. 

1647 



Rayon comrerting division of 
CONCORD-GALUA CORP., 
New York, N. Y. 
1947 



FINISHED PRODUCTS 



FUNT MFG. CO., 
Gastoida, N. C. 
1946 



CRAMERTON TEXTILE MILLS, 
INC., 

Cramerton, N. C. 
1946 



STATESVILLE COTTON MILLS, 
StatesTiUe, N. C. 
1947 



BEDSPREADS 



ELASTIC WEBBING 



i 



SUWPUN MFG. CO., 
Aatatero.N. C. 
1»4S 



BVERLASTIK, INC., 
Ctelsea, Mass. 
1946 



GENERAL RIBBON MILLS, INC., 
Catasauqua, Pa. 
1945 



RIBBONS 



H^HITE SULPHUR INDUSTRIESj 

[NC 

IVMte Sulphur Springs, W. Va, 





KNIT GOODS 



RIBBON FACTORY CORP., 
New Jersey 



SOUTH BOSTON WEAVING 

CORP., 

South Boston, Va. 



PHENDC MILLS, INC., 

Kings Mountain, N. C. 

194S 



f 



HOSIERY 



TOWN HOUSE HOSIERY MILLS, 

INC., 

CMlhowee, Va. 

1941 



RUSSELL -W ATKINS CCMIP., 
Graham, N. C. 
1942 



MC LAURIN HOSIERY MILLS, 
INC., 

Asheboro, N. C. 
1942 



HARRIMAN HOSIERY MILLS, 
Harriman, Tenn. 
1944 



MAY MC CWEN KAISER CO., 
BurUagton, N. C. 
1947 



SOURCE: BASED UPON ACTIONS REPORTED BY MOODY'S INVESTORS SERVICE AND STANDARD AND POOR'S CORPORATION 

TftS3S» O - 40 (Face p. 57) 



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THE MERGER MOVEMENT 



57 



manufacture of hoisery and had organized six subsidiary corporations 
for tlie purpose of engaging in the manufacture and sale of ladies' 
full-fashioned hosiery. 

Since 1940, Burlington has made some 24 acquisitions of other firms. 
(See Chart 12.) The general tendency of these acquisitions has been 
to solidify the vertical organization of the firm and reduce the impor- 
tance of its sales to independent converters. Burlington is now the 
largest producer of fabrics made from synthetic yarns in the United 
States, ushig approximately 10 percent of the total rayon production 
in this country, exclusive of tire-cord yarns. As the accompanying 
chart indicates, many of its recent individual purchases could, in a 
sense, be regarded as horizontal acquisitions at various levels of the 
production process. When considered in the aggregate, however, they 
have clearly had the effect of moving Burlington's operations toward 
the finished-goods phases of the industry. This is particularly true 
of its acquisitions of nine spinning and weaving firms, three dyeing 
and finishing (and selling) concerns, five hosiery mills, one knit-goods 
firm, four ribbon companies (including a sales agent), an elastic web- 
bing manufacturer and a bedspread firm. Although some of Bur- 
lington's decorative fabrics (draperies, bedspreads, etc.) are sold di- 
I rect to department stores, specialty shops, and the like, it has not as yet 
taken the final step in the forward expansion process of manufacturing 
ready-to-wear goods. 

M. Lowenstein & Sons is one of the leading New York converters, 
and has had a small. stake in the gray-goods field since 1924, when it 
acquired the facilities of Saratoga Victory Mills, Inc., in Alabama. 
Beginning early in 1946 the Lowenstein firm set out to purchase a 
nimiber of cotton mills, and by October 1947 it had secured 10 times 
the number of spindles it had previously operated.*^ 

Largely as a result of its recent acquisitions, J. P. Stevens & Co., 
Inc., traditionally one of the oldest and most prominent cotton sales 
agents in America, has now become the country's second largest textile- 
I mill product company and its largest cotton -textile firm. In the past 
It limited itself to the function of servicing numerous textile mills in 
marketing their products and did not participate in the direct owner- 
ship and operation of textile mills. But recently this traditional pat- 
tern has been completely changed. In 1946 J. P. Stevens absorbed 11 
textile firms, which controlled no less than 30 Southern and New Enc- 
n and mills! 



IfaotTnL^!;."^'^''?''' ^[°'' *''''^"^*'* '"*"* *^^ Lowenstein fold included the Huntsville Manu- 
Uto V • ' ""^ Alabama (print cloth) ; Entwistle Manufacturing Co., now called Aleo 

Id^rS";'"^ ?n :\ ''^T'^^'t:^ ?■ ^^^^"^ ^^^^^ ^'^^^ narrow'sheeiln.:; Tolr^Mms: 
Is c! and twills) ; and the Limestone & Hamrick Mills at Gaffney, 



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REPORT OF FEDERAL TRADE COMMISSION 



Early in 1947 it acquired the Ragan Spinning Co., a manufacturer 
of men's hosiery. In July 1947, it bought the Hannah Picket Mill No. 
2 at Rockingham, N. C. (producing cotton, wool, and synthetic suit- 
ings) ; in December 1947, it acquired the Lola Mills, Inc., of Stanhjy, 
N. C. (thread and yam) ; and in January 1948, it purchased a ma- 
jority interest in Industrial Cotton Mills, Inc., a company specializing 
in denims and osnaburgs. At the present time, J. P. Stevens & Co., 
Inc., controls more than 20 cotton and rayon mills with nearly 631,000 
spindles, and 9 woolen and worsted mills with about 76,000 spindles.*** 
In addition, it operates dyeing and finishing facilities and a men's 
hosiery mill. 

Similarly, Ely & Walker Dry Goods Co., the country's largest dry- 
goods wholesaler, furnishes another striking example of backwa:rd 
vertical integration in the textile industry. While Ely & Walker's 
acquisitions have been few in number, they have involved some of the 
largest firms in the industry. In 1946 it bought Calhoun Mills (Cal- 
houn Falls, N. C.) whose assets exceeded $3,000,000, and also acquired 
a large block of stock in Pacific Mills. The latter firm is one of the 
country's largest textile firms engaged in the cotton, rayon, and wool 
branches of the industry. In December 1947, Ely & Walker add<id 
the F. W. Poe Manufacturing Co. (Greenville, S. C.) print-cloth ca- 
pacity to its list of properties. 

While it is too early to appraise the ultimate effects of the merger 
movement on competition in the textile industry, there can be little 
doubt that many units in the trade have become distinctly big 
business organizations. This is indicated by the listings of the Nation's 
1,000 largest American manufacturing corporations which are periodi- 
cally prepared by the Department of Commerce. Between 1943 and 
1946 the number of textile-mill product firms included in the list ro;5e 
from 70 to 85, an increase of 21 percent. As would be anticipated, 
the textile firms that have risen most rapidly in importance have bec^n 
those which have been most heavily engaged in merger activity. 

The potential results of this merger movement in textiles have been 
summarized by one of the industry's own trade journals. Textile 
World, in the following words : 

Belief is prevalent that the industry is entering an era of larger mill groujps 
and that consequently fewer men will control the majority of its equipment and 
its products. Some extremists even forecast that the time is coming when a mere 
five or six companies will dominate the textile field just as has come to pass in 
the automobile industry." 

*«This compares with Burlington's 550,400 spindles; Lowenstein's 336,100 spindlea ; 
and Ely & Walker's 118,500 spindles (which does not include Ely & Walker's minority 
interest in Pacific Mills' 217,700 cotton and rayon spindles, and 73,100 woolen and 
worsted spindles). 

«" Textile World, July 1946, p. 101. 



THE MERGER MOVEMENT 



CONGLOMERATE ACQUISITIONS 



59 



Conglomerate acquisitions, sometimes referred to as circular acqui- 
sitions, are those in wh ich there is little or no discernible relation 
between the busin ess oFthe purchasing and the ac quired firm. Of 
all the types of mergers, the reasons for this particular form of ac- 
quisition are the most difficult to ascertain. Intent to remove a trou- 
blesome competitor or to become the leading producer of a particular 
product, so often present in horizontal acquisitions, generally does 
not exist in conglomerate acquisitions. Desire to acquire sources of 
supplies or end-product fabricating facilities, which characterizes 
vertical acquisitions, is not a factor in conglomerate mergers. Instead, 
the motives underlying conglomerate acquisitions appear to include 
such diverse incentives as Hpsirpgj^^^rpnrl riclro toJii^I^^Mrrge sums 
of idle liquid^capi tah to add products which can behandled wjtk 
existing sales and distributon persoim eL to increase the numbpr of 
products which can be grouped together"m the company's advSrtlse- 
ments, etc. 

But in addition to these factors, there is present in most con- 
glomerate acquisitions a simple drive to obtain greater economic 
power. With the economic power which it secures through its opera- 
tions in many diverse fields, the giant conglomerate corporation may 
attain an almost impregnable economic position. Threatened with 
competition in any one of its various activities, it may sell below cost 
in that field, offsetting its losses through profits made in its other 
lines— a practice which is frequently explained as one of meeting 
competition. The conglomerate corporation is thus in a position to 
strike out with great force against smaller business in a variety of 
different industries. As the Commission has previously pointed out, 
there are few greater dangers to small business than the continued 
growth of the conglomerate corporation.*^ 

But while the conglomerate corporation is thus able to wield tre- 
mendous economic power, it rests on a less secure economic justifica- 
tion than most other forms of corporate enterprise. The greater 
production skills and know-how which conceivably may be obtained 
through horizontal acquisitions of similar firms making similar prod- 
ucts do not become technically possible as a result of conglomerate 
acquisitions. The economies which conceivably may occur in vertical 
acquisitions, as a result of a smoother and more rapid flow of materials 
through the production process, are generally not to be found in con- 
glomerate acquisitions. This is not to say that no conglomerate acqui- 
sition increases efficiency. But, as the Commission has previously 

im^^'^Tf ^""^"^^ Commission, the Present Trend of Corporate Mergers and Acquisitions, 
795355—48 5 



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60 



REPORT OF FEDERAL TRADE COMMISSION 



THE MERGER MOVEMENT 



61 



stated : "The traditional rationalizations for mergers are less applica- 
ble to tliis type of acquisition of firms in completely dissimilar and un- 
related fields than to the horizontal and vertical types because of the 
great difficulty in obtaining thereby any important efficiency of pro- 
duction and distribution." *» 

During the current merger movement, conglomerate acquisitions of 
one type or another have been made throughout manufacturing in- 
dustries, particularly in such fields as machinery, food, petroleum, and 
drugs. 

Among the recent conglomerate acquisitions by machinery manu- 
facturers was the purchase of a can-machinery firai by a Diesel en- 
gine manufacturer; the acquisition of a paper-bottle company by a 
large maker of precision parts for aircraft, Diesels, and autos ; and 
the merger of a leading vacuum-cleaner manufacturer with an oil- 
burner firm.^ 

As would be expected, aircraft producers were especially active in 
seeking diversification for the postwar period. Acquisitions of leading 
firms included manufacturers of such products as movie equipment, 
radios, agricultural equipment, and burial caskets.^^ 

Striking instances of conglomerate acquisition are presented in the 
food field. Large dairy firms purchased organizations in such unre- 
lated fields as fisheries, sardine canning, and brewing.«2 Nation-wide 
specialty food concerns— such as General Foods and Standard 
Brands— broadened their lines through a wide variety of acquisitions.^^ 
At the sam e time leading petroleum corporations went so far as to 

*' Ibid. p. 12. 
rZ^Z ^*lf- ^^^*^^^™^°"<>n^d' ^hese were: Imperial Diesel Engine Co. acquired the Modern 

Vacn^^'pi""''' ^n ' ^'^"^'"-^ ^^'^^ '""^^* *^^ ^"^^'•^^^^ ^^^^' ^o«le Co. ; and Eureka 
Vacuum Cleaner Co. merged with Williams Oil-O-Matic Heating Corp 

" Examples in the order named are : Curtiss-Wright purchased the Victor Animato- 

fll * ^'"^' ; ^^"^ ^''''^- ^^^"^^^d t»^« ^^•'iO' household equipment, and radio-station busi- 
ness of Crosley Corp., as well as New Idea, Inc., a farm-implement company ; and Solar 
Aircraft acquired the Hubbard Casket Manufacturing Co. 

« Creameries of America, Inc.. is truly a conglomerate organization, since it not only 
distributes milk at wholesale and retail in the Western States, but also sells hay. grain, 
and feed m the Hawaiian Islands, and, by purchasing the Hawaii Brewing Corp has 
entered the manufacture and di.stribution of beer. 

« General Foods acquired Bireley's, Inc., a processor of citrus-fruit beverages, and the 
Gaines Food Co., Inc., one of the largest manufacturers of dry dog food. Both of thfse 
products were new to the General Foods line. 

Standard Brands entered the margarine business for the first time by acquiring Standard 
Margarine Co. Inc. Standard Margarine was one of the three largest producers of mar- 
garine in the United States, and its Blue Bonnet line included salad dressings, peanut 
butter, sandwich spread, and allied products ; its Indianapolis plant is reputed to have 
the largest production capacity of any plant in the margarine industry. (Cf Food Field 
Reporter, January 4, 1943, p. 2.) Standard Brands also bought out Strong. Cobb & Co 
a pharmaceutical manufacturer, and through its subsidiary, Fleischmann Distilling Corp" 
acquired additional distillers and a cooperage company. A looser type of relationship 
between unrelated lines is illustrated by Consolidated Grocers Corp. This company 
has achieved a dominant position in several important cities in the wholesale groce rv 
trade. In June, 1947, the chairman of its board acquired control of Associated Product's 



purchase firms manufacturing chemical sprays, cotton presses, and 
shipbuilding materials.^* 

But it is in the drug industry that conglomerate acquisitions have 
been most prominent during recent years. Nearly all of the leading 
companies in this field have a long record of mergers which have 
taken almost every conceivable direction— horizontal combination of 
competing drug lines, vertical movement backward into the pro- 
duction of basic chemicals, forward movement, not only into the 
wholesaling of drug products, but also into the operation of chains 
of retail drug stores, and now conglomerate movement into a wide 
variety of different manufacturing fields. 

An outstanding example of this recent movement is provided by 
the American Home Products Co. Incorporated in 1926 by interests 
identified with Sterling Products, Inc.,^^ this corporation has pur- 
sued a consistent policy of acquiring competitors, companies engaged 
hi auxiliary lines of activity, and firms in extraneous lines. Since its 
incorporation, it has acquired no less than 60 formerly independent 
I companies, of which 32 have been purchased since 1940. Many of 
the firms which it has acquired were not only leaders in their own 
particular fields, but were, themselves, the products of earlier mergers 
and consolidations. 

American Home Products has regularly pointed out to its stock- 
holders that it is following a "continuing policy of expansion and 
diversification" through purchase and acquisition of other companies. 
The extent of this diversification is suggested by a mere listing of some 
of the most widely known brands picked up in the coui-se of the cor- 
poration's acquisition drive— Bi So Dol, Kolynos, Anacin, Old English 
Wax, Three-in-One Oil, Clapp's Baby Food, Duff's Baking Mix, G. 
Washington Coffee, Chef Boy-Ar-Dae Spaghetti Dinner, etc. As an 
indication of the importance of acquisitions to the company's growth, 
its own annual report for 1947 pointed out that the companies ac- 
quired since December 31, 1935 (and many had been acquired prior 
to that time) were responsible for more than 59 percent of the firm's 
total sales in its most recent year's operations. 

Inc., a cosmetic firm. The transaction was reported in Moody's Industrials as an ucgtIsI- 
tion by the company itself. (Cf. Moody's Industrials— Section 1, June IS. 1947 p -815 ) 

" Standard Oil of California acquired the California Spray Chemical Corp. • RedBank 
Oil Co. acquired the Dedman Foundry & Machine Co. (cotton presses) ; and Panhandle 
i'roducing & Refining Co. acquired Miller Marine Decking, Inc. 

« Five of the eleven largest drug corporations in the country— Rexall Drug Inc (for- 
merly United Drug Co.), American Home Products, SterUng Drug, Inc., Bristol-Myers Co 
and Vick Chemical Co.— stem from the so-called Sterling group. These five companies to- 
gether, in 1942, accounted for 29 percent of the total sales in the drug industry as 
reported to the Bureau of Internal Revenue. (Cf. 79th Cong.. Senate Small Business 
i-ommittee, Economic Concentration and World War II, p. 204.) 



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REPORT OF FEDERAL TRADE COMMISSION 



^ 




Truly diversified and far-flung, American Home Products Corp.'s 
operations are carried on by some 50 companies and divisions produc- 
ing, in all, approximately 5,000 products. In the United States and 
Canada it has 37 manufacturing plants, 33 research and control labora- 
tories and 46 operational centers. Its distribution network encircles 
the globe, functioning through 24 wholly owned foreign subsidiaricis, 
with principal offices in London, Buenos Aires, Sydney, Auckland, 
Mexico City, Dublin, Calcutta, and Durban, South Africa.^® 

The conglomerate nature of American Home Products' recent ac- 
quisitions is indicated in the accompanying chart (Chart 13). On a 
horizontal plane, it has bought out firms manufacturing pharmaceuti- 
cals, biologicals, vitamins, and even veterinary products. Its conglom- 
erate acquisitions have extended the firm's activities into food special- 
ties, waxes and polishes, dyes and paints, insecticides, cosmetics, and 
other lines. As an indication of the extent of the company's diversi- 
fication, only slightly more than half (58 percent) of its business in 
1947 was derived from the sale of ethical and packaged drugs. The 
balance was divided among foods (25 percent), household products 
(10 percent), colors and dyes (5 percent) and cosmetics (2 percent.}" 

Among its more important acquisitions since 1940 have been the 
following: In the ethical drug field, American Home Products pur- 
chased two outstanding firms — International Vitamin Corp. and Miller 
Wholesale Drug Co. — which gave it a strong position in the manu- 
facture and distribution of vitamin products. Coverage in this field 
was further broadened by the acquisition in March 1943 of Ayerst, 
McKenna & Harrison, Ltd., and its subsidiary, engaged in the manu- 
facture and sale of hormone, biological, vitamin, and pharmaceutical 
products.^* Operations in the biological field were extended through 
the purchase of Reichel Laboratories ^* and the Gilliland Laboratories, 
Inc. 

In the field of veterinary pharmaceuticals, A. H. P. made two major 
acquisitions, of which the most important was Fort Dodge Serum Co. 
(Fort Dodge, Iowa), one of the country's leading manufacturers and 
distributors of veterinary products. 

Having entered the food field just prior to the war by acquiring the 
S. M. A. Corp., manufacturer of infants' food, as well as the capital 
stock of Harold H. Clapp, Inc., one of the country's leading manufac- 

•* Sales Management, May 1, 1945, p. 36. 

" American Home Products Corp., 22 Annual Report, 1947, p. 3. 

"The parent company is a leading factor in the Canadian hormone and vitamin field. 
The subsidiary (now also directly owned by the American Home Products Corp.) operates 
in the United States, where activities are being substantially expanded, particularly in 
hormones, and an organization is being built up specially adapted to the promotion of 
ethical drug specialties. 

*" Subsequent to acquisition, this subsidiary has become an important manufacturer of 
penicillin. 



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Chart 13 



CONGLOMERATE AND OTHER ACQUISITIONS OF THE AMERICAN HOME PRODUCTS CO. 

1940-1947 



HORIZONTAL- 



ASPERTANE - 
Trademark, goodwill and cerUin 
other assets 

1941 



BALDWIN LABORATORIES, INC., 
Saegertown, Pa. 

1941 



MILLER WHOLESALE DRUG CO., 
IMl 



INTERNATIONAL 

VITAMIN CORP., 

1941 



REICHEL LABORATORIES, 
1942 



Orugsi, Pharmaceuticals, etc. 



AMERICAN HOME 
PRODUCTS CO. 



E. E. BARTOS, INC., 
1943 



AYERST, MC KENNA 
& HARRISON, LTD., 
1943 



GILULAND LABORATORIES. INC, 
Marietta, Pa. 

1943 



RESEARCH PRCOUCTS, 
1944 



FORT DODGE SERUM CO., 
Fort Dodge, Iowa 

1945 



-^ 



Food Specialties 
I 



G. WASHINGTON COFFEE 

REHNING CO., 
Morris PUins, N. J. 
1943 



BELLE CENTER CREAMERY b 
CHEESE CO., & Sub O.M.S. CORP. 
Belle Cemer, Ohio 
1943 



P. DUFF & SONS, INC., 
1M4 



CHEF BOY-AR-DEE QUAUTY 
FOODS, INC., 

1946 



JOSEPH BURNETT CO., 
Boston, Inlass. 
IMS 



Waxes, Polish. etc. 
I 



DRI-BRITE, INC., 
1940 



CARDINAL 

LABORATORIES, INC., 
1940 



DEXTA CO., 
1942 



WAXOLITE PRODUCTS, INC., 
1942 



KANT -RUST PRCtt)UCTS CO., 
Rafaway, N. J. 

1941 



-V Information concerning principal products of these companies 
not ova liable. 



Chemicals 



J. B. SHOHAN t CO., 
1942 



LINDEN CHEMCAL CO. 
Rabway, N. J. 
1941 



KEEFE CHEMICAL CO., 
Boston, Mass. 
1941 



SALEM CHEMICAL & 

SUPPLY CO., 
Salem, Mass. 
1941 



CONGLOMERATE 



Dyes arid Paints 




WELLS & RICHARDSON, INC., 
1943 



PRESCOTT PAINT CO., 
1944 



MARIETTA DYESTUFFS CO., 
Marietta, Ohio 

1944 (Resold 1945) 



Insecticides 



ANTROL LABORATCHUES, INC., 
California 

1940 



Cosrnetlcs 



VITA RAY CORP., 
IMS 



Ottier 



PLA-STEELE CO., 
Cleveland, Ohio 
1941 



SAMOUNE CORP., 
1942 



SOURCE '. BASED UPON ACTIONS REPORTED BY MOODY'S INVESTORS SERVICE AND STANDARD AND POOR'S CORPORATION 



795355 O - 48 (Face p. 62) 



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63 



turers of baby foods, American Home Products expanded into the 
production and sale of soluble powdered coffee by acquiring the G. 
Washington Coffee Refining Co. and into the manufacture and dis- 
tribution of prepared baking mixes by purchasing P. Duff & Sons, Inc. 

On the surface, the purchase of the Belle Center Creamery & Cheese 
Co. seemed to carry the corporation quite far afield. However, this 
company served a threefold pufpose: It provided a supply of milk 
sugar to be used in the A. H. P.'s infant foods; it gave the corporation 
a general line of dairy products ; and it produced cheese for another 
subsidiary, the Chef Boy-Ar-Dee Quality Foods, Inc. Chef Boy-Ar- 
Dee and the Joseph Burnett Co., a leading producer and distributor 
of flavoring extracts and food colors, were acquired in 1946. 

The household products field — including such items as floor waxes, 
polishes, dyes, and paints — represents still another area in which 
American Home Products has extended itself. Since 1940 no less 
than 11 separate firms in this field have been acquired, including the 
producers of Dextra (a metal polish), Diamond Dyes, Prescott 
(paints) and Antrol and Dwinn (insecticides), as well as five pro- 
ducers of floor waxes, polishes, etc.®^ By the purchase of Harmon 
Color Works, Inc., in 1942, American Home Products prepared for 
the postwar sales of pigments to the automobile industry. Harmon's 
activities were supplemented 2 years later through the acquisition of 
Marietta Dyestuffs Co., manufacturer of dyestuff intermediates (as 
well as drug intermediates). In 1945, however, this partial vertical 
expansion was abandoned, as Marietta Dyestuffs was resold to Ameri- 
can Cyanamid Co.®^ 

Through these and other acquisitions, American Home Products be- 
came an important manufacturer of a full line of germicides, disin- 
fectants, deodorants, and insecticides, including the powerful DDT, 
for which the postwar market was viewed with great expectation.^^ 
Finally, the purchase of Vita Ray Corp. has carried American Home 
Products further into the cosmetic business, a field in which it has been 
active for many years. 

TIE-IN ACQUISITIONS-DISTILLING 

A type of merger which has become increasingly important during 
recent years is one which might be identified as the tie-in. In this 

*> American Home Products had entered this business as early as 1927, through the 
purchase of A. S. Boyle Co., manufacturers of the well-known Old English brand. 

" The consideration was 30,500 shares of the American Cyanamid common plus a cash 
payment of approximately $390,000. 

«2 While its color business was greatly contracted during the war, Harmon manufactured 
substantial quantities of antimalarial drugs and sulfathiozole, but has since discontinued 
these operations to resume full-scale production of pigments. Subsequent to its acquisition 
by American Home Products, Marietta supplied the Government with substantial quan- 
tities of DDT. 



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64 



REPORT OF FEDERAL TRADE COMMISSION 



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type the transfer of the physical plant (or capital stock) is accom 
panied by, or even incidental to, the transfer of some other factor which 
is of outstanding economic value. Among these other factors may b<i 
, such items as stocks of goods on hand, containers, brand names, good 
will, etc. During prosperous periods, such as the country has experi- 
enced since the outbreak of Worl d War I l^numerous acquisitions of 
this type are made, particularly ^or'tlie purpose of obtaining goods 
which are in short sup'pTyT ~ ~ ^ 

The acquisition drive inaugurated by the large distillers during the 
war affords a striking example of this tie-in type of merger activity. 
This drive took three principal forms, involving the purchase of (1) 
f / direct competitors in the distilling business, (2) tight cooperage com- 
1/ panics, and (3) wineries. As a result of these acquisitions, the large 
/' distillers substantially enhanced their position in terms of inventories 
of aging whiskeys, took over virtually the entire tight cooperage in- 
dustry, and absorbed wineries whose storage capacity represented 
nearly one- fourth of California's total wine output and which held 
approximately half of all the wines then aging.^ 

With few exceptions, the acquisitions through which this concentra- 
tion was achieved were motivated by a desire to obtain something else 
than a mere plant or capital stock. In the case of the purchases of 
distillers, the something else consisted of aging whiskeys and other 
spirits which were acutely needed by the large distillers, whose pro- 
duction of liquor had been restricted during the war and who found 
themselves confronted with an enormous postwar demand for distilled 
spirits. As an additional something else they picked up in these 
acquisitions brand names of well-established straight whiskeys or 
blends of straight whiskey, some of which were then used to facilitate 
the sale of blended whiskeys containing neutral spirits. 

In the case of the purchase of tight cooperage facilities, it is apparent 
that the distillers were motivated not so much by a desire to make this 
a captive industry as by the competitive necessity of securing whiskey 
barrels. Without whiskey barrels, whiskey cannot be aged, and with- 
out aged whiskey to sell, the large distillers would soon have found 
themselves in an extraordinarily difficult position. It should be noted 
that the distillers, as owners of the tight cooperage facilities, were 
able to purchase white oak, the chief raw material used in the manu- 
facture of barrels, at prices which the independent cooperage firms 
could not meet. This had the dual effect of inducing the independent 
cooperage firms to sell out and at the same time making it difficult 
for any distiller to operate without a captive cooperage plant of 
its own. 



*> Ct Fortune, The Big Wine Deal, Septemlier 1943. 




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THE MERGER MOVEMENT 



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In still a third direction, the distillers moved into the wine industry 

j and bought up a number of major winery concerns in California. Here 

the something else was a supply of some type of beverage with which 

[to supply their distributors during the period of wartime shortages. 

Incidentally, another significant development in the preemption of 

supplies was the signing of long-term exclusive distribution contracts 

I between large eastern concerns and some of the major wineries.** 

The acquisitions of the Big Four «^ distillei-s clearly illustrate these 
I tendencies. Since 1940 Schenley Distillers Corp., largest of the group, 
'has absorbed no less than 15 other distillers. (See chart 14.) By way 
[ of contrast, Schenley had purchased only two distillers in the 4-year 
I period, 1935-39. The importance of obtaining aging stocks as a motive 
in these acquisitions is suggested by the case of Merchants Distillers 
I Corp., in which Schenley 's purchase was confined to inventory of 
j bulk whiskey, trade-marks, and control of the firm's case-goods busi- 
ness. In addition to its acquisitions of distilleries, Schenley also 
bought up two tight cooperage concerns located in Louisville, Ky. 
Among its other acquisitions were the Blatz Brewing Co., a large Mil- 
waukee concern, two cordial concerns, and eight other firms. 

Distillers Corp.-Seagrams, Ltd., was also active in acquiring not only 
distilleries, but also wineries, tight cooperage and other concerns. 
(See chart 15.) One of Seagram's most significant acquisitions was 
Frankfort Distillers, Inc., of Frankfort, Ky., one of the five largest 
independents (i. e., smaller than the Big Four). Frankfort not only 
was a leading competitor of Seagrams, but also possessed a number of 
very popular brand names, such as Four Roses and Paul Jones, which 
were exploited in the sale of blends.^ Although Seagrams disposed 
of its wineries in 1944, it has continued to operate the Allied Barrel 
Corp., which had been converted to the production of tight cooperage. 
Similarly, National Distillers Products Corp. has a long record of 
acquisitions of competitive distilleries. (See chart 16.) Its recent 
important acquisitions include the Bardstown Distilleries Co. and the 

*» Typical of such arrangements was the exculsive 5-year distribution contract signed 
by McKesson & Robbins for the Padre wines, produced and bottled by the Padre Vinyard 
Co. McKesson & Robbins also acquired distribution rights on* similar terms from the firm 
of L. N. Renault & Sons, operating wineries in both California and New Jersey, Canada 
Dry, which has been selling both wine and ginger ale, is now the exclusive distributor for 
the I. V. C. Wines of the Italian Vinyard Co. at Guasti, Calif. In addition, during the war, 
some of the wine bottling and distributing firms bought independent wineries themselves 
to manufacture their supply of wines for distribution. 

«5 In this report the term "Big 4" as applied to the liquor industry, is used in its tradi- 
tional and customary sense as including National Distillers Prod. Corp., Distillers, Corp.- 
Seagrams, Ltd., Schenley Distillers Corp., and Hiram Walker-Gooderman & Worts, Ltd., 
although in recent years a different firm, Publicker, has become one of the four largest 
liquor producers. 

« Prior to December 1941, both Four Roses and Paul Jones were blends of straight 
whiskey. At present, however, both are blended whiskeys, including 60 percent and 72.5 
percent, respectively, of grain neutral spirits. 



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66 



REPORT OF FEDERAL TRADE COMMISSION 



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Glenco Distilling Co., both located in the heart of the Bourbon country 
in Kentucky. National acquired the Italian Swiss Colony Winery, 
as well as Gambarelli & Davitto, eastern distributors of Italian Swiss 
Colony. In addition, National acquired three tight cooperage firms, 
Bellows & Co., New York wholesalers and importers, and the White 
Rock Corp., one of the leading carbonated water firms. 

Hiram Walker-Gooderman & Worts, Ltd. (see chart 17) has ac- 
quired three distilleries since 1940, as well as several wineries in Cali- 
fornia. Moreover, it is one of the few distillers that has extended its 
interests backward in the winery business beyond the mere acquisition 
of vineyards, acquiring two ranches in California to produce grapes, 
prunes, and walnuts. Like the other large distillers, this corporation 
acquired several cooperage firms, and also absorbed an important wine 
and liquor importer. 

In addition to the absorption of two former strongholds of small 
business — the tight cooperage and whiskey distilling industries the 
principal effect of these acquisitions has been to give the Big Four 
distillers control over the supply of aging whiskey. This is illus- 
trated in chart 18, which shows the production, total whiskey stocks, 
and the whiskey stocks 4-years-old and over, held by the large com- 
panies. Largely as a consequence of the conversion to industrial 
alcohol production during the war, the position of the Big Four, in 
terms of output of whiskey declined in favor of the next four largest 
producers. Thus, while the Big Four produced 61 percent of all the 
whiskey in 1941 and the next four produced 15 percent of the total, 
in 1946 the Big Four turned out 41 percent and the next four produced 
29 percent of the total. However, the position of the Big Four was 
materially enhanced in terms of the ownership of whiskey stocks. 
From ownership of 55 percent of the total in 1941, their position 
rose to 63 percent in 1946. In terms of aged whiskey stocks, 4-years- 
old and over, their gains were even more striking. In 1941 the Big 
Four held 57 percent of the aged stocks; by 1946 they held no less 
than 75 percent of the total. The Big Four in 1946 held nearly as 
much aging whiskey as the entire industry possessed in 1941. 



II 



CONCLUSION 

The ultimate significance of this loophole in the law lies in the question 
of the public interest. Under the theory of free, competitive capi- 
talism, the public interest is assumed to be protected by the force of 
competitive enterprise — the "higgling of the market place," the "un- 
seen hand of competition". The dictum, "That government is best 
which governs least", is founded upon the theory that no central 
regulatory government is needed to protect the public interest. Un- 



THE MERGER MOVEMENT 



67 



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REPORT OF FEDERAL TRADE COMMISSION 



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der competitive capitalism consumers are protected from high prices 
by the constant rivalry among numerous firms for a greater share 
of the market. A market which is "free and open" safeguards the 
smaller, independent producers in their efforts to offer new and 
better products. A free and unfettered competitive system gives 
workers not only the legal right, but also the actual opportunity to 
peek gainful employment among a relatively large number of firms 
and thus most profitably utilize their special skills and abilities. The 
existence of competition protects the farmers by (a) bringing down 
the prices of the articles which they buy and (b) creating a mass market 
for the products which they sell. 

Consumers, smaller producers, workers, farmers — all are assumed 
to be protected by this invisible force. It keeps open the oppor- 
tunities for improvement and advancement and yet prevents the 
abuses of size and power. It absorbs revolutionary technological and 
economic changes and yet requires no revolution in our system of 
government. It is no exaggeration to say that the theory of compe- 
tition has been the heart of the American philosophical and political 
system. 

So much for the theory; but what of the actuality? In practice, 
competition has proved to be a somewhat crudely working but, on the 
whole, highly effective theory and system. Yet, it would be blind- 
ness not to recognize the obvious fact that the effectiveness of compe- 
tition, as the protector of the public interest, has been seriously weak- 
ened during the last several decades. In industry after industry^ 
prices, production, employment and, in fact, all forms of economic 
activity have come under the domination of the Big Four, the Big Six, 
or in some cases, the leader. . -- 

It is true that in some of these highly concentrated fields competi- 
tion still functions as a reasonably effective force. But in others the 
industrial and financial figures who control the giant corporations 
have apparently adopted the policy of live and let live. Vigorous 
price reductions have become conspicuous by their rarity. In such 
fields, the dead hand of corporate control has replaced the unseen 
hand of competition. 

No great stretch of the imagination is required to foresee that if 
nothing is done to check the growth in concentration, either the giant 
corporations will ultimately take over the country, or the Govern- 
ment will be impelled to step in and impose some form of direct regu- 
lation in the public interest. In either event, collectivism will have 
triumphed over free enterprise, and the theory of competition will 
have been relegated to the limbo of well-intentioned but ineffective 
ideals. This is a warning which the Commission has repeated time 



THE MERGER MOVEMENT 



69 



and again, and one which some of those who have the most to gain by 
the preservation of competition seem determined to ignore. 
For example, in 1939 the Commission stated : 

The capitalist system of free initiative is not immortal, but is capable of dying 
and of dragging down with it the system of democratic government. Monopoly 
constitutes the death of capitalism and the genesis of authoritarian government.*^ 

The Commission believes that the economic forces, on which it has 
been basing its warnings, require that a definite choice be made. 
Either this country is going down the road to collectivism, or it must 
stand and fight for competition as the protector of all that is em- 
bodied in free enterprise. 

Crucial in that fight must be some effective means of preventing 
giant corporations from steadily increasing their power at the ex- 
pense of small business. Therein lies the real significance of the pro- 
posed amendment to the Clayton Act, for without it the rise in eco- 
nomic concentration cannot be checked nor can the opportunity for 
a resurgence of effective competition be preserved, - 



"76th Congress, Ist session, Hearings before the Temporary National Economic Com- 
mittee, Part 5, p. 2200. 



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Appendix I. EXTERNAL VS. INTERNAL GROWTH OF 
LARGE STEEL CORPORATIONS, 1915-45 

In the following appendix the Commission presents a study of the 
extent to which the over-all expansion of eight of the country's 
largest integrated steel corporations, covering the period 1915-45,^ 
has been due to external, as contrasted to internal growth. External 
growth takes place with the combining together of existing firms by 
means of acquisitions, mergei-s, consolidations, and through the crea- 
tion of other types of combinations such as trusts and holding 
companies. Convei*sely, internal growth occurs through the building 
of new facilities or the expansion of existing properties, resulting 
from new construction, installation of new equipment, and other forms 
of capital expansion. 

Conceptually, these two types of expansion are quite distinct, and 
little difficulty arises from considering them in the abstract.^ How-"^ 
ever, certain difficulties arise when an attempt is made to separate 
these two forms of growth, on the basis of published statements of 1 
, the corporations. In the first place, it is necessary to select from the 
several alternatives one measure of size. One possibility would be 
\ ) totaLassftts, another might fee net assets (total assets less current 
liabilities), and a thirdjltotal sales. For purposes of the present 
study, the second alternat i ve^was Tised, inasmuch as it reflects as 
nearly as possible the actual investment in the business. 

Two difficulties were faced. In the first place, many corporations 
which were products of the era of consolidation were capitalized at 
values considerably in excess of their tangible values — the difference 
being made up of watered stock. The case of the United States Steel 
Corp. is well known. When the corporation was formed in 1901, it 
was capitalized at just double its tangible value. In subsequent years, 
this water was eliminated from the corporation's capital structure. 

In order to avoid the anomalous result of show ing a decline in assets 
of United States Steel at the same time that its actual size was growing, 
it was thought best to disregard completely the original watering and 
the subsequent dehydrating of the corporation, and consequently the 

1 Except as otherwise indicated. 

» As distinct from capital expansion itself, there are, of course, two sources of capital 
funds used in the process of expanding a particular business, namely (1) plowed-back 
earnings, and (2) new capital from the sale of securities, loans, etc. 

70 



THE MERGER MOVEMENT 



71 



cliange in its net assets was measured by eliminating these intangibles 
at the beginning of the period surveyed. 

A second problem w^as how to consider depreciation over the years. 
The balance sheet figures on net assets would, of course, allow for 
depreciation. However, if the capital of the various companies 
acquired were added up, they would be on a gross basis. Rather than 
attempt to measure the depreciation of the acquired properties, it 
was felt that the best approximation would be achieved by simply 
comparing the gross additions resulting from acquisitions against the 
over-all change in net assets before depreciation allowances. 

The resujtiiig figures, therefore, indicate roughly the proportion 
of the growth which may be traceable to external expansion, or through 
the acquisition of other properties. These figures contain three sources 
of understatement. In the first place, there is the matter of mergers 
and acquisitions that occurred prior to the period under review. Thej 
two outstanding cases were United States Steel Corp. and Bethlehem 
Steel Corp., both products of major consolidations prior to 1915. 
Similarly, while less spectacular, most of the other steel companies 
were, in part, the product of earlier mergers and consolidations.. 

Secondly, in numerous instances the purchase of an independent 
concern would result in an impairment of the capital of the acquiring 
concern, for the reason that a higher price was paid than the assessed 
valuation of the properties., Accountingwise, this procedure is no 
doubt correct. From an economic point of view, however, it seriously 
understates the effect of the transaction. In reality, the acquiring 
corporation is usually in a position to raise funds much greater than 
the purchase price of the acquired property, capitalizing on its good 
will. 

Third, for the period under review, data were available only on 99 
out of a total of 153 known acquisitions of the 8 large steel companies. 
To this extent, the measurement of the proportion of the growth since 
1915 attributed to acquisitions is obviously understated.^ 

The following table shows the extent to which the over-all growth 
of the major steel companies was due to external expansion. 

" These general sources of understatement are, of course, in addition to those applying 
more specifically to the experience of the steel industry as an example, as discussed above. 
(Cf. footnote on p. 25 of this report.) 



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REPORT OF FEDERAL TRADE COMMISSION 



Relative importance of acquisitions in capital expansion of major steel companies, 

1915-45 



Company 



TJ. S. Steel Corp.-- 

Bethlehem Steel Corp 

Republic Steel Corp 

Jones & Laughlin Steel Corp.i- 
Youngstown Sheet & Tube Co. 

Inland Steel Co.*.- -. 

American Rolling Mill Co. 

Colorado Fuel & Iron Corp.*... 



Total- 



Number 

of acnui- 

sitions 



24 
40 
21 
19 

4 
30 
12 

3 



153 



Number 

for which 

data are 

available 



12 

33 

13 

13 

4 

13 

8 

3 



99 



Total undepreciated addi- 
tions to net assets 



Total (in 
thousands) 



$1, 699, 139 
1, 185, 101 
495, 695 
257. 367 
360.044 
206,367 
246, 489 
51,919 



4, 502, 121 



Pue to ac- 
quisitions (in 
thousands) 



$117,504 

395, 629 

316,996 

40.384 

102. 530 

19. 839 

49. 197 

21,725 



1, 062, 804 



Percent of 
total incre- 
ment in net 
assets due to 
acquisitions 



6.9 
33.4 
63.8 
15.7 
28.5 

9.6 
20.0 
41.8 



23.6 



» Period covered, 1923-45, inclusive. 
« Period covered, 1918-45, inclusive. 
» Period covered, 1936-45, inclusive. 

Source: Federal Trade Commission. 

It will be noted that the total undepreciated addition to net assets 
for the eight companies from 1915 through 1945 amounted to over 
$4.5 billion. Of this total, at least $1.1 billion, or 23.6 percent, was due 
to external expansion, the proportions ranging from 63.8 percent for 
Bethlehem Steel Corp. to 6.9 percent for United States Steel Corp., 
while five of the eight companies could trace more than one-fifth of 
their growth to mergers and acquisitions. 

The following pages present (a) a detailed description for each of 
the acquisitions for which information was obtained, and (h) tables 
for each of the corporations, listing these acquisitions, together with 
the amount of capital increment resulting therefrom. 

UNITED STATES STEEL CORP. 

Position in the industry.— Vnited States Steel Corp., a holding com- 
pany, through its subsidiaries is the largest steel producer in the United 
States, having an annual rated capacity for raw steel and castings on 
January 1, 1945, amounting to 32,307,000 net tons, or approximately 
33.8 percent of the capacity of the entire industry. One of the corpo- 
ration's subsidiaries is also the largest producer of cement, with an 
annual producing capacity of 33,590,000 barrels as of December 31, 

1940. 

Its major operations include : The production of a wide variety of 
finished and semifinished steel products ; the production of cement ; the 
fabrication and erection of steel structures such as bridges and build- 
ings; the construction of ships, barges and railroad freight cars; the 
production and sale of pig iron and of miscellaneous products that are 
byproducts of, or closely related to, iron and steel manufacturing 



THE MERGER MOVEMENT 



73 



activities; the production of substantially all of the iron ore and 
limestone, most of the coal, and a part of the dolomite, zinc ore, fluor- 
spar and manganese ore used in its own operations; the operation of 
coke ovens, which supply substantially all of the coke oven gas and 
tar used by the corporations; the generation of a major part of its 
electric power requirement ; the operation of steamships, barges, and 
docks on the Great Lakes, and steamers, tugs, and barges on various 
rivers for the transportation of raw materials and finished and semi- 
finished products; the operation of common carrier railroad lines 
transporting shipments between the properties of the mining and 
manufacturing subsidiaries ; and the operation of steamships in inter- 
coastal and foreign service, carrying products purchased or sold not 
only by the corporation's own subsidiaries but also the products for 
outside shippers. 

Organisation of United States Steel Corp. — United States Steel 
Corp., a holding company, was incorporated under the laws of the 
State of New Jersey on February 25, 1901, and immediately acquired 
practically the entire capital stocks of the Carnegie Co., Federal Steel 
Co., National Tube Co., American Steel & Wire Co. (New Jersey), 
National Steel Co., American Steel Hoop Co., American Sheet Steel 
Co., American Tin Plate Co., American Bridge Co., Lake Superior 
Consolidated Iron Mines, Shelby Steel Tube Co., also the entire issue 
of bonds of the Carnegie .Co. and a one-sixth interest in the capital 
stock of Oliver Iron Mining Co. and of Pittsburgh Steamship Co. The 
other five-sixths interest in the stocks of the last-named two companies 
was owned by the Carnegie Co. 

From time to time United States Steel Corp. or its subsidiaries 
acquired other independent enterprises until on December 31, 1944, it 
controlled about 132 subsidiary companies. 

Acquisitions by United States Steel Corp. — From January 1, 1915, 
to the end of 1945, the United States Steel Corp. acquired control of 
about 24 independent enterprises. Information concerning 12 of these 
indicates that approximately 6.9 percent of the growth of the corpora- 
tion during the period was derived from external expansion through 
the acquisition of other concerns. 

In June 1920, the corporation acquired a controlling interest in the 
capital stock of Michigan Limestone & Chemical Co. The capital 
stock of Cyclone Fence Co. was purchased on August 1, 1924, and 
during July 1928 control of Northwest Fence & Wire Works was 
acquired by the purchase of its capital stock. 

During 1930, the assets of Atlas Portland Cement Co., Columbia 
Steel Co., and Oil Well Supply Co. were acquired by United States 
Steel Corp. One of its subsidiaries purchased the assets of Jackson 




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REPORT OF FEDERAL TRADE COMMISSION 



Fence Co. on August 1, 1934, and, on December 27, 1935, the assets 
of Virginia Bridge & Iron Co. were acquired by another subsidiary. 

In September 1936, another subsidiary acquired the capital stock 
of Gerrard Company, Inc. The corporation purchased all of the 
capital stock of Potter Ore Co. early in 1937. The assets of Boyle 
Manufacturing Company, Inc., were secured on July 1, 1939, and, on 
June 30, 1944, substantially all of Gunnison Housing Corp.'s out- 
standing capital stock was purchased. 

Each of these 12 acquisitions is discussed in more detail in the 
following paragraphs. 

Acquisition of stock control of Michigan Limestone <& Chemical 
Co. — In June 1920, United States Steel Corp. acquired a controlling 
interest in the capital stock of Michigan Limestone & Chemical Co., 
for an undisclosed consideration. This company owned a large acre- 
age of high-grade limestone located in Presque Isle County, Mich.,- 
together with a complete plant for quarrying, crushing, sorting, and 
shipping limestone. At the time of its acquisition approximately one- 
half of its output was being supplied to United States Steel Corp.'s 
subsidiaries. 

The balance sheet of Michigan Limestone & Chemical Co. as of 
May 31, 1920, showed net assets amounting to $5,724,538.71, represented 
by a funded debt of $1,509,300, and stockholders' equity with a book 
value of $4,215,238.71. 

During the year 1919, Michigan Limestone & Chemical Co.'s net 
sales amounted to $2,124,193.65 ; and its profit amounted to $271,984.15 
before provision for income taxes or to $241,984.15 after deduction of 
that provision. 

In comparison with the above-stated amounts, the net sales of 
United Steel Corp. for the year 1919 amounted to $1,448,557,835, its 
net income before provision for income taxes amounted to $137,351,891 
and after deduction of that provision to $85,351,891. 

Inasmuch as approximately one-half of the output of Michigan 
Limestone & Chemical Co. had been sold to the acquiring company's 
subsidiaries, the acquisition did not fully augment the sales volume 
of the United States Steel Corp. 

Acquisition of the capital stock of Cyclonic Fence Co. — On August 
1, 1924, American Steel & Wire Co., a subsidiary of United States 
Steel Corp., acquired all of the capital stock of Cyclone Fence Co., 
which was engaged in the manufacture, under patented methods, 
of a variety of woven-wire fencing not then being produced by the 
acquiring organization. This company had operating plants at Wau- 
kegan. 111., and Cleveland, Ohio. 



THE MERGER MOVEMENT 



75 



'It 



There being no data available as to the acquired company's finan- 
cial position as of August 1, 1924, or shortly prior thereto, it is 
assumed that the consideration paid, in the amount of $3,194,700, 
consisting of 5,007 shares of $100 par value preferred stock ($500,700) 
and $2,694,000 principal amount of bonds of United States Steel Corp., 
constituted an approximation of the book value of the equity acquired. 

However, since the outstanding preferred stock of United States 
Steel Corp. remained constantly at 3,602,811 shares from December 
31, 1903, through December 31, 1945, it is presumed that the 5,007 
shares of $100 par value preferred stock, previously mentioned, were 
purchased in the market for an unrevealed amount of cash so that 
the estimated maximum value of the equity added by this acquisition 
was $2,694,000. 

Acquisition of stock control of Northwest Fence <& Wire Works. — 
In July 1928, the United States Steel Corp. group acquired a con- 
trolling interest in the capital stock of Northwest Fence & Wire Works, 
for an undisclosed consideration. 

Northwest Fence & Wire Works had, as of March 31, 1928, net 
assets amounting to $76,531.69, all of which constituted the stock- 
holders' equity. Information as to the acquired company's sales and 
profits for the year 1927 is lacking. 

Acquisitions during iP^^.— United States Steel Corp. acquired the 
properties, assets and business of the Atlas Portland Cement Co., 
Columbia Steel Co., and Oil Well Supply Co. during the year 1930. 

As of January 9, 1930, United States Steel Corp. acquired the 
properties, assets and business of the Atlas Portland Cement Co. for 
176,265 shares of its common stock. The latter company was incorpo- 
rated in Pennsylvania on May 5, 1899, and on the date of its acquisi- 
tion owned and operated six cement plants, located in six States, with 
a combined annual capacity of 18,000,000 barrels. It is reported that 
all of these plants were located in, and served, territories far removed 
from the territories in which were located the cement plants controlled 
by the acquiring corporation. 

The consolidated balance sheet of The Atlas Portland Cement Co. 
and its subsidiaries as of December 31, 1929, showed net assets amount- 
ing to $45,922,532.75, represented by a long-term debt of $2,000, an 
outstanding minority interest in the capital stock and surplus of sub- 
sidiary companies of $38,185.23, and stockholders' equity of a book 
value of $45,882,347.52. 

The total cash value of these assets, as appraised by the acquiring 
corporation, was established at not less than $31,137,000, or about 67.78 
percent of their book values. 

795355—48 6 



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REPORT OF FEDERAL TRADE COMMISSION 



Based on the Atlas Portland Cement Co.'s net sales in the amount 
of $16,454,599.41 for the 9 months ended September 30, 1929, it is 
estimated that its net sales for the whole of that year amounted to 
about $21,939,465.88. 

On January 31, 1930, the properties, assets and business of Columbia 
Steel Corp. were acquired by United States Steel Corp. The acquiring 
corporation appraised the cash value of these assets at not less than 
$41,375,000 and issued therefor 251,771 shares of its $100 par value 
common stock. 

Columbia Steel Corp. owned and operated steel producing plants 
and rolling mills at Pittsburg and Torrance, Calif., a steel foundry 
at Portland, Oreg., and a blast furnace and byproduct coke plant at 
Provo, Utah. It also owned extensive iron ore, coal and limestone 
deposits in Utah. 

It is reported that prior to this acquisition United States Steel Corp. 
had, for several years, considered the establishment of steel producing 
and manufacturing operations on the Pacific coast, to better serve its 
existing trade as well as to prepare for the future growth of both 
domestic and foreign trade by service from coast plants. 

According to Columbia Steel Co.'s balance sheet as of February 1, 
1930, the day after its acquisition, there were net assets in the amount 
of $41,732,036.08, represented by long-term debt of $157,036.08, con- 
tingent reserve of $200,000, and United States Steel Corp. purchase 
account in the amount of $41,375,000. 

There are no available data as to the acquired company's net sales 
and profits for the year ended December 31, 1929. 

On October 1, 1930, United States Steel Corp. acquired the assets 
and business of Oil Well Supply Co., which was one of the largest 
manufacturers of supplies for drilling oil and gas wells. In addition 
to its 7 manufacturing plants, it had 17 general repair shops and 89 
distributing stores located throughout all oil- and gas-producing fields 
in the United States and Canada. 

According to report, this acquisition furnished United States Steel 
Corp. an established organization operating throughout the United 
States and abroad as a medium for the distribution to consumers, and 
under the special conditions attaching to the development and opera- 
tion of oil and gas properties, of a large quantity of steel pipe, wire 
rope, and other products of its subsidiary companies used in the oil 
and gas fields. 

Oil Well Supply Co.'s balance sheet as of September 30, 1930, showed 
net assets amounting to $19,307,930.75, which were appraised at $19,- 
057,930 by the acquiring corporation, and paid for by issuing 108,402 
shares of United States Steel Corp's $100 par value common stock. 



THE MERGER MOVEMENT 



77 



The acquired company's net sales amounted to $32,765,526.17 in 1927, 
to $33,594,701.02 in 1928, and to $35,714,431.03 in 1929 ; and its net 
income before provision for income taxes amounted to $696,780.39, 
$662,970.97, and $1,307,432.97 respectively, in these years, and after 
deduction of income taxes, to $613,166.74, $583,414.45, and $1,150,541.- 
01,. respectively. 

While the assets acquired through these three acquisitions were set 
up on United States Steel Corp.'s records at their appraisal valuation 
of $91,570,335, their aggregate book valuation as independent enter- 
prises amounted to $106,962,499.58. And this amount related to the 
$2,164,825,613 of capital of United States Steel Corp. at the beginning 
of the year constituted a capital increment of 4.94 percent. 

As previously stated, Columbia Steel Co.'s net sales for 1929 were 
not reported and the Atlas Portland Cement Co.'s net sales for that 
year were estimated. Hence, the net sales for two of the acquired 
companies aggregated approximately $57,653,897, which, related to 
$1,493,505,485 of net sales by the acquiring corporation during the 
year 1929, indicates an addition to net sales volume of approximately 
3.86 percent. 

Acquisition of the assets of Jackson Fence Co.— On August 1, 1934, 
American Steel & Wire Co., a subsidiary of United States Steel Corp., 
purchased the assets of Jackson Fence Co. for an undisclosed consider- 
ation. 

Jackson Fence Co. had, on June 30, 1934, net assets of $123,754.97, 
which compared with the $2,050,380,792 of capital of United States 
Steel Corp. as of December 31, 1933. 

No data are available as to the acquired company's net sales and 
profits for the year preceding its acquisition. 

Acquisition of the assets of Virginia Bridge <& Iron Co. — On De- 
cember 27, 1935, Tennessee Coal, Iron & Railroad Co., a subsidiary of 
United States Steel Corp., through Virginia Bridge Co., a subsidiary 
organized for the purpose, acquired the assets of Virginia Bridge & 
Iron Co. This company's properties consisted of fabricating plants, 
located in Virginia, Alabama, and Tennessee, having an annual pro- 
ductive capacity of approximately 100,000 tons of finished structural 
work, comprising railroad and highway bridges, office and mill build- 
ings, hangars, pier sheds, and steel railroad cars. 

A balance sheet of Virginia Bridge & Iron Co. as of December 31, 
1934, showed net assets amounting to $3,327,539, all of which consti- 
tuted the stockholders' equity. 

For these assets the acquiring company paid $1,388,550 in cash. 
No information is available as to the net sales and profits of the ac- 
quired company. 



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REPORT OF FEDERAL TRADE COMMISSION 



Acquisition of stock control of Gerrard Co., Inc. — A controlling in- 
terest in the capital stock of Gerrard Co., Inc., was acquired by Ameri- 
can Steel & Wire Co., a United States Steel Corp. subsidiary, during- 
the fourth quarter of 1936 for an undisclosed consideration. This 
company, a customer of American Steel & Wire Co., was engaged in 
the manufacture and rental of wire strapping machines. 

The balance sheet of Gerrard Co., Inc., as of December 31, 1936, 
after its acquisition, showed net assets in the amount of $514,881.43, 
all of which constituted the stockholders' equity. This equity com- 
pared with the $1,752,573,051 of capital of United States Steel Corp. 
at the beginning of that year. 

During the year ended December 31, 1936, the acquired company's 
net sales amounted to $1,350,696.36, as compared with the $1,099,931,- 
336 of net sales of United States Steel Corp. for the same year. 

Acquisition of the capital stock of Potter Ore Co. — Tennessee Coal, 
Iron & Railroad Co., a United States Steel Corp. subsidiary, having 
owned one-half of the capital stock of Potter Ore Co. since 1907, pur- 
chased, on January 1, 1937, all of the remaining shares from Republic 
Steel Corp. for $283,913 in cash. 

Potter Ore Co. had, on December 31, 1936, net assets of $23,190.96, 
represented by $5,000 of capital stock and accumulated profit or surplus 
of $18,190.96. Since the acquiring company owned a one-half intei-est, 
it is assumed that one-half of the value of the capital stock, or $2,500, 
constituted the amount of its investment. Thus net assets with a book 
valuation of $20,690.96 were acquired for a cash consideration of 
$283,913, resulting in a capital depletion of $263,913. The capital of 
the United States Steel Corp. as of that date amounted to $1,760,226,287. 

Acquisitio7i of the assets of Boyle Manufacturing Co., Inc. — On July 
1, 1939, United States Steel Corp. acquired the properties and assets of 
Boyle Manufacturing Co., Inc., which manufactured steel barrels, 
drums, pails, buckets, heavy hollowware, garden tools, light recep- 
tacles, and specialties. 

The balance sheet of Boyle Manufacturing Co.. Inc., as of June 30, 
1939, showed net assets amounting to $3,032,853.66. 

Inasmuch as cash in the amount of $2,597,561 was the consideration 
paid for these net assets, the net addition to capital effected by this 
acquisition was only $435,292.66, which compared with the $1,628,- 
775,798 of capital of the acquiring corporation at the beginning of that 
year. The acquired company's net sales for the year ended December 
SI, 1938, amounted to $2,407,524, which related to the $766,673,753 of 
net sales by the acquiring corporation for the same year. - 

Acquisition of the capital stock of Gunnison Housing Corp. — On 
June 30, 1944, United States Steel Corp. purchased all of the preferred 



THE MERGER MOVEMENT 



79 



stock and 2,120 out of a total of 2,900 shares of the outstanding com- 
mon stock of Gunnison Housing Corp. for $921,503 in cash. And at 
the same time it also purchased, for $10, an option to purchase the 
remaining 780 shares of common stock. 

This company was engaged in the manufacture and sale of pre- 
fabricated wooden houses. When this acquisition was made it was 
reported that United States Steel Corp., through the medium of this 
company, expected to further the use of steel in residential construction. 

Gunnison Housing Corp.'s balance sheet as of June 30, 1944, showed 
r.et assets amounting to $217,930.14, all of which constituted the stock- 
holders' equity. The company's net sales amounted to $546,984.69 in 
the year ended June 30, 1942, to $1,753,389.49 in 1943 and to $890,446.92 
in 1944. 

Wliile United States Steel Corp. did not acquire quite all of the 
capita] stock of Gunnison Housing Corp., the reported cost of $921,503 
paid in cash was $703,573 more than the book value of the entire equity, 
and therefore decreased the net assets of the acquiring corporation by 
that amount. 

The following table lists each of the 12 companies acquired by 
United States Steel Corp., together with th« amount that each repre- 
sented in terms of capital increment or impairment. 

United States Steel Corp. 



Year 
acquired 



1920 
1924 
1928 
1930 
1930 
1930 
1934 
1935 
1936 
1937 
1939 
1944 



Company whose assets or capital stocks were acquired 



Michigan Limestone & Chemical Co.L 

Cyclone Fence Co.' 

Northwest Fence & Wire Works '.. . 

The Atlas Portland Cement Co 

Columbia Steel Corp 

Oil Well Supply Co 

Jackson Fence Co 

Virginia Bridge & Iron Co.. 

Gerrard Company, Inc.* 

Potter Ore Co.i 

Boyle Manufacturing Co., Inc 

Gunnison Housing Corp,' 



Total. 



Capital 
increment 



$5, 724, 539 

2, 694, 000 

76,532 

45, 922, 533 

41, 732, 036 

19, 307, 931 

123, 755 

1, 938, 939 

514, 8S1 

2 263,222 

435. 293 

2 703, 573 



117,503,694 



» Acquisition of capital stock. 
» Capital impairment. 



BETHLEHEM STEEL CORP. 



Position in the industry. — Bethlehem Steel Corp., a holding com- 
pany, was rated in 1945 as the second largest steel producer. Its eight 
major operations include : the manufacturing and selling of iron, steel, 
iron and steel products, coke, and coke byproducts; the construction 
and selling of steel passenger train, freight train, and mine cars ; the 
fabricating, selling and erecting of steel for buildings, bridges, tanks, 
and other miscellaneous structures, the contracting for, and the build- 



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REPORT OF FEDERAL TRADE COMMISSION 



ing and repairing of, naval and merchant vessels, tugs, car floats, barges 
and other harbor craft ; the mining and quarrying of ore, coal and 
limestone for the use of its subsidiaries ; the transportation of ore, coal, 
grain, iron and steel products, lumber, and miscellaneous merchandise 
on the Great Lakes and in the coastal waters of the United States; the 
operation of short-line railroads; and the operation of certain public 
water-supply systems. 

The combined rated capacities of the facilities of the corporations' 
subsidiaries are estimated at 12,900,000 net tons of steel ingots and 
castings, 8,358,000 net tens of coke, and 9,654,000 net tons of pig iron 
and f erromanganese per annum. 

Organisation of Bethlehem Steel Corp.— Bethlehem Steel Corp. 
(New Jersey) , a holding company, was incorporated under the laws of 
the State of New Jersey on December 10, 1904, as the successor to 
United States Shipbuilding Co. and acquired the entire capital stocks 
of Bethlehem Steel Co., Harlan & Hollingsworth Corp., Union Iron 
Works Co., Samuel L. Moore & Sons Corp., Cartaret Improvement Co., 
Eastern Shipbuilding Corp., Crescent Ship Yard Corp., Bath Iron 
Works Co., and Hyde Windlass Co. Early in 1905 the plants of Bath 
Iron Works Co., and Hyde Windlass Co. were disposed of and in 1907 
the plant of Eastern Shipbuilding Corp. was sold. 

On July 1, 1919, Pacific Coast Steel Corp. was incorporated in Dela- 
ware and on January 15, 1936, its name was changed to Bethlehem 
Steel Corp. (Delaware) . 

On February 26, 1936, Bethlehem Steel Corp. (New Jersey) and 
three of its wholly owned subsidiaries, Kalman Steel Corp., Bethlehem 
Mines Corp., and Union Iron Works Co. were consolidated with Beth- 
lehem Steel Corp. (Delaware), pursuant to an agreement dated 
January 16, 1936. In effecting this consolidation, each holder of the 
7-percent cumulative preferred stock of the New Jersey corporation 
became entitled to receive in exchange for each share thereof one share 
of the 7-percent cumulative preferred stock ($100 par value) and one 
share of the 5-percent cumulative preferred stock ($20 par value) of 
the Delaware corporation, and $1 in cash, and each holder of the com- 
mon stock of the New Jersey corporation became entitled to receive, 
for each share thereof, one share of the common stock of the Delaware 
corporation. 

Acquisitions hy Bethlehem Steel Corp.— Yvom January 1, 1915, to 
the end of 1945, the Bethlehem Steel Corp. group acquired more than 
40 independent enterprises, information concerning 33 of which was 
furnished. It acquired, on July 6, 1916, the assets of Pennsylvania 
Steel Co. ; all of the properties and assets of Lehigh Coke Co. were 
acquired as of February 1, 1917; American Iron & Steel Co.'s prop- 



THE MERGER MOVEMENT 



81 



*' 



erties and assets were acquired on February 27, 1917 ; also, on Febru- 
ary 1, 1917, it acquired possession of a portion of the assets of the 
Lackawanna Iron & Steel Co. 

A Bethlehem Steel Corp. subsidiary acquired, as of December 1, 
1918, stock control of Cornwall Iron Co. and Cornwall Railroad Co. 

During April 1920, another subsidiary acquired certain assets of 
Jamison Coal & Coke Co. The shipyards of Baltimore Dry Docks & 
Shipbuilding Co. were purchased on October 31, 1921. The acquisi- 
tions of the properties and assets of Simpson's Patent Dry Dock Co. 
as of October 26, 1922, and of Lackawanna Steel Co. on October 10, 
1922, were important from the standpoint of value. 

On March 30, 1823, the most important acquisition was made, name- 
ly, most of the properties and assets of Midvale Steel & Ordnance Co, 
and its subsidiary Cambria Steel Co. These enterprises represented a 
total capital, inclusive of long-term borrowed capital as well as the 
book value of the stockholders' equity, of $180,087,003. 

After having leased a shipyard property of Southwestern Ship- 
building Co. for 3 years, the corporation's shipbuilding subsidiary 
purchased it on January 1, 1925. And on July 6, 1928, it acquired 
the ship repair yard of The Alantic Works at East Boston, Mass. 

During January 1930 two of the corporation's subsidiaries acquired 
all of the properties and assets of the following companies : Pacific 
Coast Steel Co. ; Southern California Iron & Steel Co. ; and Danville 
Structural Steel Co. 

Bethlehem Steel Corp. and one of its subsidiaries acquired, during 
1931, the properties and assets of five enterprises, namely, McClintic 
Marshall Corp., Levering & Garrigues Co., Hay Foundry & Iron 
Works, Hedden Iron Construction Co., and Kalman Steel Co. 

As of October 28, 1932, the properties and assets of Seneca Iron & 
Steel Co. were acquired ; and in December 1936 it purchased the entire 
capital stock of Taubman Supply Corp. 

The assets of three more enterprises, namely. United Shipyards, 
Inc., Shoemaker Bridge Co., and International Supply Co., were ac- 
quired during 1938. 

After having made no acquisitions for approximately 5 years, 
Bethlehem Steel Corp., on December 29, 1943, acquired the entire 
capital stock of Atlas Steel Barrel Corp., which was engaged in the 
manufacture of steel barrels and pails. 

The corporation continued its acquisitions by purchasing as of June 
30, 1944, all of American Well & Prospecting Co.'s capital stock ; and 
by November 30, 1944, it had acquire*] all of the capital stock of 
Pacific Coast Forge Co. 




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REPORT OF FEDERAL TRADE COMMISSION 



Durinjr the first 2 months of 1945, the corporation acquired the 
entire capital stock issues of three more enterprises, namely : Buffalo 
Tank Corp., Petroleum Equipment Co., and Petroleum Equipment 

International. . . 

Each of these 33 acquisitions is discussed in more detail in the 

following paragraphs : . x • 7 

Acquisition of the assets of Pemm/lvania Steel Co. and its subsid- 
iaries, Juhj 6, 1916.— On July 6, 1916, Bethlehem Steel Co., a subsidiary 
of Bethlehem Steel Corp., through Penn -Mary Steel Co., a subsidiary 
organized for the puri>ose, acquired the assets of Pennsylvania Steel 
Ca, which was engaged in the business of producing iron and steel 
products and of shipbuilding. 

The consolidated balance sheet of Pennsylvania Steel Co. and its 
subsidiaries as of March 1, 1916, showed net assets (after deducting 
current liabilities inclusive of the accruals for taxes and interest for 
the period. January 1 to March 1, 1916) amounting to $55,009,191, 
represented by a funded debt of $25,791,000, an outstanding minority 
interest in the capital stock and surplus of a subsidiary company of 
$13,700, and stockholders' equity of a book value of $29,204,491. 

The consideration paid by the Penn-Mary Steel Co., for these assets 
was $31,941,680 in cash and the assumption of the obligations under 
mortga."-e bonds in the principal amount of $17,291,000. 

Inasmuch as cash in the amount of $31,941,630 was part of the 
consideration paid for the net assets carrying a book valuation of 
$55,009,191, the net equity acquired amounted to only $23,067,561. 
Related to the $93,450,536 of capital of Bethlehem Steel Corp. at the 
betriimino- of the vear, this constituted a capital increment of 24.7 

percent. 

Information as to Pennsylvania Steel Co.'s net sales and net income 
before providing for income taxes during the year 1915 is not avail- 
able. However, the acquired company's net income after deduction 
of income taxes in 1915 amounted to $2,010,957 ; related to the corre- 
sponding figure of $17,762,812, netted by Bethlehem Steel Corp., 
this indicates that the acquisition added about 11.3 percent to the net 
earning power of that corporation. 

Acquisitions during 1917.— The assets and properties of three enter- 
prises, namely : Lehigh Coke Co., American Iron & Steel Manufactur- 
ing Co., and the Lackawanna Iron & Steel Co., were acquired by the 
Bethlehem Steel Corp. group during the year 1917. 

As of February 1, 1917, Eastern Coke Co., a subsidiary of Bethle- 
hem Steel Corp., organized for the purpose, acquired all of the prop- 
erties and assets of Lehigh Coke Co., which operated a byproduct 
coke plant at Bethlehem, Pa. 



THE MERGER MOVEMENT 



83 



There being no data available as to the acquired company's financial 
position as of February 1, 1917, or shortly prior thereto, it is assumed 
that the consideration paid, in the amount of $8,067,250, consisting of 
$1,067,250, in cash and $7,000,000, principal amount of 5-percent first- 
mortgage gold bonds of Eastern Coke Co., constituted an approxima- 
tion of the book value of the net assets acquired. 

Penn-Mary Steel Co., a subsidiary of Bethlehem Steel Corp., on Feb- 
ruary 27, 1917, acquired the properties and assets of American Iron 
& Steel Co. which was engaged in the manufacturing of bolts, nuts, 
rivets, and similar products. 

American Iron & Steel Manufacturing Co.'s balance sheet as of 
December 31, 1916, showed net assets (after deducting current lia- 
bilities) amounting to $9,920,727. The company's gross sales 
amounted to $3,721,920 in 1914, to $4,957,312 in 1915, and to $9,033,986 
in 1916 ; and its net income to surplus for year amounted to $71,179, 
$517,017, and $1,107,013 in the 3 years respectively. 

The vending company received only $6,600,000 principal amount, 
of 20-year 5-percent first-mortgage sinking fund, gold bonds of Penn- 
Mary Steel Co. for its net assets. In spite of the fact that the vend- 
ing company's operations had been increasingly profitable, the con- 
sideration paid by the acquiring company was only 66.53 percent of 
the book value of the net assets acquired. 

On February 1, 1917, Bethlehem Steel Co., a subsidiary oftBethle- 
hem Steel Corp., acquired possession of those assets that were situated 
in Lebanon County, Pa., of The Lackawanna Iron & Steel Co. Those 
assets, including blast furnaces, shares of Cornwall Iron Co. stock, 
and a leasehold interest in Cornwall Railroad Co., were conveyed to 
the acquiring company by an indenture dated August 31, 1917. 

Their depreciated valuation on the books of the vending company 
not being available, it is assumed that the assumption of liability under 
mortgage bonds of The Lackawanna Iron & Steel Co. in the principal 
amount of $1,770,000 and the payment of $770,347 in cash by Bethle- 
hem Steel Co. indicated a book value of approximately $2,540,347 of 
the assets acquired. 

Through these three acquisitions, the Bethlehem Steel Corp. acquired 
control of assets aggregating approximately $20,528,324, part of the 
payment for which was $1,837,597 in cash, resulting in the acquisition 
of a net equity of approximately $18,690,727. This amount, related 
to $170,316,788 of capital of the acquiring corporation at the begin- 
ning of 1917, constituted a capital increment of 11 percent. 

As previously stated, American Iron & Steel Co.'s gross sales dur- 
ing 1916 amounted to $9,033,986, which, related to $216,284,556 of 
gross sales by the acquiring corporation during the same year, indi- 



^ 



84 



REPORT OF FEDERAL TRADE COMMISSION 



1 



I- 



A 



^. 



cates an addition to gross sales volume of about 4.2 percent. The com- 
bined net income to surplus for year, of this company, and the Lacka- 
wanna Iron & Steel Co., in 1916 amounted to $1,518,466, which, re- 
lated to the corresponding amount of $43,593,978 netted by Bethlehem 
Steel Corp., indicates that the acquisitions added about 3.5 percent to 
the net earning power of that corporation. Sales and profit data for 
Lehigh Coke Co., and sales information for The Lackawanna Iron & 
Steel Co. are lacking. 

Acquisition of ths capital stocks of Cornwall Railroad Co. and Conv- 
wall Iron ^'c*.— Bethlehem Steel Co., having received 667 shares of 
Cornwall Iron Co.'s capital stock and a leasehold interest in Corn- 
wall Railroad Co. as part of the assets acquired, during 1917, from The 
Lackawanna Iron & Steel Co., acquired from certain individuals, as of 
December 1, 1918, the remaining 5,333 shares of Cornwall Iron Co. 
stock and the entire capital stock of Cornwall Railroad Co. Three 
blast furnaces owned by Cornwall Iron Co., and the railroad proper- 
ties of Cornwall Railroad Co. had been operated by Bethlehem Steel 
Co. as leasee since February 1, 1917. 

Balance sheets of the two companies as of December 31, 1918, 30 
days after ownership control had been obtained, showed net equity in 
the aggregate value of .$1,494,719. This amount, compared to the 
$300,517,478 of capital of Bethlehem Steel Corp. at the beginning of 
that year. 

The consideration paid for the stocks acquired, and sales and profit 
information for the acquired companies were not reported. 

Acquisition of certain properties of Jamison Coal <& Coke Co. — ^In 
April 1920, Finch Run Coal Co., a subsidiary of Bethlehem Steel Corp., 
acquired from Jamison Coal & Coke Co. two coal mines comprising 
approximately 6,700 acres of coal, together with tenant houses, mining 
equipment and facilities, and merchandise stores and inventories. 

The depreciated valuation of these properties, on the books of the 
vending company as of the date of acquisition not being known, it is 
assumed that the consideration paid therefor in the amount of $7,151,- 
769, consisting of $695,769 in cash, $4,200,000, principal amount, of 
Finch Run Coal Co.'s bonds and the assumption of the liability under 
two bond issues of Jamison Coal & Coke Co. aggregating $2,256,000 
principal amount, represents a fair approximation of their value. 
This estimated valuation exclusive of the amount of cash paid consti- 
tuted an addition to the net assets of the acquiring company in the 
computed amount of $6,456,000, which is 2.1 percent of the $303,992,212 
of net assets of Bethlehem Steel Corp. as of the beginning of the year. 

Acquisition of shipyards of Baltimore Dry Docks & Shiphuilding 
Co.— On October 31, 1921, Bethlehem Shipbuilding Corp., Ltd., a sub- 



THE MERGER MOVEMENT 



85 



sidiary of Bethlehem Steel Corp., purchased three shipbuilding and 
ship repair yards at Baltimore, Md., from Baltimore Dry Docks & 
Shipbuilding Co. The reported purchase price of $3,030,000 was 
paid, $280,000 in cash and $2,750,000, principal amount, in purchase 
money mortgage 5I/2 -percent 15-year sinking fund gold bonds of 
Bethlehem Shipbuilding Corp., Ltd. 

No information is available as to the vending company's financial 
position at, or shortly prior to, October 31, 1921. Therefore, the val- 
uation of these net assets added by the acquiring company is estimated 
at $2,750,000, which amount is the purchase price exclusive of the 
$280,000 paid in cash. This estimated valuation, compared to 
$337,400,842 of capital of Bethlehem Steel Corp. at the beginning 
of that year. 

Acquisitions during 1922. — The Bethlehem Steel Corp. acquired the 
properties and assets of Simpson's Patent Dry Dock Co. and Lacka- 
wanna Steel Co. during the year 1922. 

As of October 26, 1922, Bethlehem Shipbuilding Corp., Ltd., a sub- 
sidiary of Bethlehem Steel Corp., acquired the properties and assets, 
except accounts receivable, securities and cash, of Simpson's Patent 
Dry Dock Co., which operated a ship repair yard at East Boston, Mass. 

There being no information available as to the financial position of 
the vending company at, or shortly prior to, the date of this acquisi- 
tion, it is assumed that the consideration paid in the amount of 
$502,022, consisting of $317,509 in cash and $182,000, principal amount, 
of consolidated mortgage 6-percent gold bonds, series A, of Bethlehem 
Steel Corp. (on which interest had accrued in the aggregate amount 
of $2,513), constitutes a fair estimate of the book value of the net 
assets acquired. 

All the properties and assets of Lackawanna Steel Co. were acquired 
by Bethlehem Steel Co., of New York, Inc., a subsidiary of Bethlehem 
Steel Corp., on October 10, 1922. 

A consolidated balance sheet of Lackawanna Steel Co. and its sub- 
sidiaries as of September 30, 1922, showed net assets (after deducting 
current liabilities inclusive of accruals for taxes and interest for the 
period, January 1 to September 30, 1922) amounting to $82,102,190.82, 
represented by funded and secured debt of $21,337,000 and stock- 
holders' equity with a book value of $60,765,190.82. 

In consideration for these net assets, the acquiring company as- 
sumed the vending company's liability under its funded and secured 
debt in the principal amount of $21,337,000, paid $473,509.45 in cash 
and delivered $12,500,000, par value, of 7-percent cumulative pre- 
ferred stock and $22,608,500, par value, of class B common stock of 
Bethlehem Steel Corp. The total value of the consideration paid 



I'il 




11 



86 



REPORT OF FEDERAL TRADE COMMISSION 



I 
j 



H 



. H 



-ri 



was only $56,919,009.45, or 69.33 percent of the book value of the net 
assets acquired. This is probably accounted for by the fact that the 
vending company's gross sales and earnings declined from $70,587,- 
305.92 in 1920 to $18,301,331.84 in 1921, and its net income for the 
year decreased from a profit of $4,294,375.16 in 1920 to a loss of 
$3,384,876.79 in 1921. 

Control of net assets having an aggregate book value of $82,604,213, 
was thus acquired by Bethlehem Steel Corp., during the year 1922. 
However, to effect these acquisitions, it expended cash in the amount 
of $791,018, which reduced the value of the increment to a net of 
$81,813,195. This increment related to the $342,774,452 of capital 
of the acquiring company at the beginning of that year, constituted 
a 23.9-percerit increase in the capital under its control. 

Sales and profit data for the year preceding acquisition were avail- 
able for Lackawanna Steel Co. and its subsidiaries only. Its gross 
sales and earnings during 1921 amounted to $18,301,331.84, which, re- 
lated to $147,794,353 of gross sales by Bethlehem Steel Corp. during 
the same year, indicates an addition of 12.4 percent to the corporation's 
gross sales volume. The acquired company's operations during 1921 
were unprofitable to the extent that it sustained a $3,384,876.79 loss 
which, related to the amount of $10,332,805 of profit netted by the 
acquiring corporation for that year, indicates that this acquisition 
reduced the corporation's net earning power by about 32.8 percent. 

Acquisition of assets of Midvale Steel <& Ordnance Co, and Cambria 
Steel Co. — On March 30, 1923, various Bethlehem Steel Corp. sub- 
sidiaries acquired all the properties and assets of Midvale Steel & 
Ordnance Co., except its Nicetown Plant and Ordnance business and 
the capital stock of Cambria Steel Co. and two other subsidiaries; 
they also acquired the properties and assets of Cambria Steel Co. 
Midvale Steel & Ordnance Co. owned approximately 97 percent of 
Cambria Steel Co.'s capital stock, and was engaged in the manu- 
facture of iron and steel products. Cambria Steel Co. operated 
(under a 999-year lease dated December 1, 1898) the plant of Cambria 
Iron Co. at Johnstown, Pa. 

The consolidated balance sheet of Midvale Steel & Ordnance Co. 
and subsidiaries (including Cambria Steel Co.) as of March 31, 1923, 
shows assets aggregating $191,385,769.27. However, the value of its 
Nicetown Ordnance Plant, which was not included among the assets 
sold, is not reported. Therefore, its net assets in the amount of $180,- 
687,003.31, as shown by this consolidated balance sheet, exceeds the 
book value of the assets acquired by Bethlehem Steel Corp. 

The aggregate book value of the consideration paid by the acquiring 
corporation for these assets was $156,729,900, consisting of $97,681,400, 



THE MERGER MOVEMENT 



87 



par value, of the common stock of Bethlehem Steel Corp., and the as- 
sumption of the funded and secured debt of Midvale Steel & Ordnance 
Co. and its subsidiaries in the principal amount of $50,580,500, to- 
gether with $8,468,000 of Cambria Iron Co.'s capital stock on which 
4-percent dividends are guaranteed under a 999-year lease. 

It appears, therefore, that the value of the net assets acquired by 
Bethlehem Steel Corp. was an amount between the $156,729,900 of 
consideration paid and the $180,687,003.31 of net assets of the vending 
company. These amounts, related to the $409,737,022 of capital of 
the acquiring corporation as of the beginning of the year indicates 
a capital increment of between 38 and 44 percent. 

Sales and profit data of Midvale Steel & Ordnance Co. and its 
subsidiaries for the year 1922 are lacing. 

Acquisition of shipyard property of Southwestern Shipbuilding 
Co. — From January 1, 1922, to December 31, 1924, Bethlehem Ship- 
building Corp., Ltd., a subsidiary of Bethlehem Steel Corp., operated 
under lease a shipyard property at Los Angeles, Calif., owned by 
Southwestern Shipbuilding Co. The rental under the terms of the 
lease was the sum of (1) taxes on the property, (2) $30,000 a year 
and (3) an amount equal to 40 percent of the net profits from the 
operation of the property. 

After having operated this property under lease for 3 years, the 
lessee corporation, on January 1, 1925, purchased it for $934,072.27, 
payment for which was $34,072.27 in cash and $900,000, principal 
amount, of purchase money mortgage 6-percent 15-year sinking fund 
gold bonds of Bethlehem Shipbuilding Corp., Ltd. 

Neither the depreciated valuation of the properties on the books of 
the vending company, nor its financial position at, or shortly prior to, 
January 1, 1925, having been reported, it is assumed that the value of 
the consideration paid, by the acquiring corporation, represented their 
equitable valuation. However, since a part of the valuation of the 
properties thus ascertained was paid in cash, only $900,000 of addi- 
tional equity was acquired by Bethlehem Shipbuilding Corp., Ltd. 
This additional equity, compared with $587,554,293 of capital of Beth- 
lehem Steel Corp. as of December 31, 1924. 

Acquisition of ship repair yard of the Atlantic Works. — On July 6, 
1928, Bethlehem Shipbuilding Corp., Ltd., a Bethlehem Steel Corp. 
subsidiary, acquired the ship repair yard of the Atlantic Works at 
East Boston, Mass., for $477,572.71 in cash, and the assumption of 
$422,500, principal amount, of the vending enterprise's 6-percent first' 
mortgage bonds. 

The Atlantic Works had, on December 31, 1927, net assets of $1,- 
960,900 after deduction of current liabilities. Inasmuch as part of the 



%\ 



88 



REPORT OF FEDERAL TRADE COMMISSION 






5C; 



consideration paid was $477,572.71 in cash, the acquisition increased 
the net assets of the acquiring corporation only approximately $1,- 
483,327. The capital of Bethlehem Steel Corp. at the beginning of 
that year amounted to $621,231,487. 

Gross sales of the Atlantic Works during 1927 amounted to $1,- 
316,004, which compared with $271,502,891 of gross sales by Bethlehem 
Steel Corp. during the same year. In the same year the vending com- 
pany's net income for the year amounted to $38,811, which compared 
to the corresponding amount of $15,826,142 netted by Bethlehem Steel 

Corp. 

Arquisitiom dnring WSO.—Duv'mg the year 1930, two subsidiaries 
of Bethlehem Steel Corp. acquired the properties and assets of Pacific 
Coast Steel Co., Southern Califprnia Iron & Steel Co., and Danville 
Structural Steel Co. 

As of January 9, 1930, Pacific Coast Steel Corp., a subsidiary of 
Bethlehem Steel Corp., acquired all the properties and assets of Pacific 
Coast Steel Co., and Southern California Iron & Steel Co. Both of 
these companies had been engaged in the manufacture of iron and 
steel products on the Pacific coast. 

Pacific Coast Steel Co.'s net assets, valued at $9,419,018 on its books 
as of December 31, 1929, were purchased by Pacific Coast Steel Corp. 
for $14,793,500, principal amount, of its 5-percent serial gold bonds. 
The corporation also purchased the net assets of Southern California 
Iron & Steel Co., valued on their books at $3,372,842, for $7,228,500, 
principal amount, of its 5-percent serial gold bonds and its assumption 
of liability under $746,750, principal amount, of the first mortgage 
614-percent gold bonds of the vending company. 

Among the assets acquired from Pacific Coast Steel Co. were 6,516 
shares of Southern California Iron & Steel Co. capital stock, in ex- 
change for which Pacific Coast Steel Corp. received $2,022,000, prin- 
cipal amount, of its own 5-percent serial gold bonds previously given 
as part payment for the net assets of the latter company. 

Thus Pacific Coast Steel Corp. acquired net assets valued at $12,- 
153,316, on the books of the vending companies, for $20,746,750 of 
its own and assumed securities, on which the annual interest expense 
exceeded $1,000,000. However, the acquired companies' combined net 
income after providing for Federal income taxes amounted to $999,542 
in 1927, to $1,430,287 in 1928, and to $463,707 in 1929, indicating that 
the excessive value of the consideration received was not justified by 

their earning power. 

As of January 27, 1930, Bethlehem Steel Co., a subsidiary of Bethle- 
hem Steel Corp., purchased the properties and assets of Danville Struc- 
tural Steel Co. The consideration paid in the amount of $546,996 



THE MERGER MOVEMENT 



89 



consisted of the assumption of $276,605.97 of the acquired company's 
bonded obligation and the assumption of its current liabilities, which 
exceeded its current assets by $270,390.03. 

Lacking financial data for the acquired company it is assumed that 
the value of the consideration paid represents a fair valuation of the 
net assets acquired. 

During 1930, Bethlehem Steel Corp. acquired, from these three enter- 
prises, net assets aggregating approximately $12,429,922, which, related 
to its $752,705,243 of capital at the beginning of that year, constituted 
an increment of 1.7 percent. 

Sales and profit information for the year 1929 was available only for 
Pacific Coast Steel Co. and Southern California Iron & Steel Co. 
Their gross sales and earnings for that year aggregated $12,871,097, 
which, related to $342,516,207 of gross sales by Bethlehem Steel Corp. 
for the same year, indicates an addition of 3.8 percent to the corpora- 
tion's gross sales volume. During 1929, the acquired companies' net 
income before providing for Federal income taxes amounted to $907,- 
798, and their net income after deducting Federal income taxes was 
$463,707 ; and these, related to the corresponding amounts of $47,780,- 
129 and of $42,242,980 respectively netted by Bethlehem Steel Corp., 
indicates that these acquisitions added 1.9 percent and 1.1 percent 
respectively to the corporation's net earning power before and after 
income taxes. 

Acquisitions during 1931. — During 1931, the properties and assets 
of McClintic-Marshall Corp., Levering & Garrigues Co., Hay Foundry 
& Iron Works, Hedden Iron Construction Co., and Kalman Steel Co., 
were acquired by Bethlehem Steel Corp. 

On February 10, 1931, Bethlehem Steel Corp. acquired all the prop- 
erties and assets of McClintic-Marshall Corp. These properties, fully 
equipped for the fabrication and construction of steel buildings, 
bridges, tanks, river barges, pipe lines, etc., located in Pennsylvania, 
New York, Illinois, and California, represented an important exten- 
sion of the acquiring corporation's activities. 

Neither the book value of the assets acquired nor the vending com- 
pany's balance sheet having been reported, it is assumed that the valu- 
ation of the consideration paid was an equitable estimate of the capital 
represented by the acquired assets. The consideration paid was {a) 
the assumption of liability under $12,000,000, principal amount, of 
collateral trust 5^/2 -percent serial gold bonds of McClintic-Marshall 
Construction Co., (b) $8,200,000, principal amount, of Bethlehem Steel 
Corp.'s 41/^ -percent serial gold bonds, and {c) 240,000 shares of the 
no par value common stock of Bethlehem Steel Corp. The valuation 
placed on this common stock was not reported. However, the corpo- 



■-«!' 



It 



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4Tt 



90 



REPORT OF FEDERAL TRADE COMMISSION 



ration's balance sheet as of December 31, 1930, indicated a book value 
of approximately $141.82 per share, or $34,036,800 for the 240,000 
shares. Thus the computed valuation of the consideration paid 
amounted to $54,236,800. 

Bethlehem Steel Corp., on April 21, 1931, purchased all the prop- 
erties and assets of Levering & Garrigues Co., a New Jersey corpora- 
tion engaged in the fabrication of structural steel and the erection of 
buildings, for $2,250,000, principal amount, of its 4y2-percent serial 

^old bonds. 

The net assets acquired were valued at $1,392,972 in the April 30, 
1931, balance sheet of Levering & Garrigues Co. During the year 
1930, the acquired company's gross sales and earnings amounted 
to $8,107,107, and its profit amounted to $176,429 after providing 
for Federal income taxes. 

On April 22, 1931, Bethlehem Steel Corp. acquired all the prop- 
erties and assets of Hay Foundry & Iron Works, a New Jersey corpora- 
tion engaged in the fabrication and erection of iron and steel, for 
$2,000,000, principal amount, of its 4y2-percent serial gold bonds. 

The vending company had, on April 30, 1931, net assets of $1,279,- 
658. During the year 1930 its gross sales amounted to $3,221,439; 
and it sustained a net loss of $68,525. 

Again on April 23, 1931, Bethlehem Steel Corp. purchased all the 
properties and assets of Hedden Iron Construction Co., another New 
Jersey corporation engaged in the fabrication and erection of iron and 
steel, for $1,250,000, principal amount, of its 4y2-percent serial gold 

bonds. 

In this case the net assets, of the acquired company, as shown by 
its balance sheet of April 30, 1931, were only $370,072, and its gross 
sales and earnings, during 1930 were $2,779,543 while for the same 
year its profit after deducting Federal income taxes was $37,811. 

On August 4, 1931, Kalman Steel Corp., a subsidiary of Bethlehem 
Steel Corp. organized for the purpose, acquired all the properties 
and assets of Kalman Steel Co., a Delaware corporation, engaged in 
the warehousing and selling of steel products, for $493,398 in cash 
and the assumption of its mortgage obligations in the principal 
amount of $336,667. 

A balance sheet of Kalman Steel Co. as of July 31, 1931, showed 
net assets amounting to $1,493,663, a funded debt of $336,667, and a 
stockholders' equity with a book valuation of $1,156,996 after deduc- 
tion of an accumulated deficit of $477,004. 

In spite of gross sales and earnings amounting to $7,424,682 in 
1928, to $7,732,887 in 1929, and to $7,105,073 in 1930, the acquired en- 
terprise had not shown a profit since 1928 and then only $16,049, but 



THE MERGER MOVEMENT 



91 






had sustained losses of $263,560 and $288,767 respectively during 
1929 and 19b0. 

Through these five acquisitions, Bethlehem Steel Corp. gained con- 
trol of additional net assets of an aggregate book value of approxi- 
mately $58,279,767, which related to its $679,812,050 of capital at the 
beginning of the year 1931, constituted a capital increment of 8.6 
percent. 

Sales and profit information for the year preceding acquisition 
was available for all of the acquired enterprises except McClintic- 
Marshall Corp. During 1930, the gross sales and earnings of the other 
four enterprises aggregated $21,213,162, which, related to $258,979,253 
of gross sales by Bethlehem Steel Corp. during the same year, indicates 
an addition of 8.2 percent to the gross sales volume of the corporation. 

Acquisition of assets of Seneca Iron <& Steel Co. — As of October 28, 
1932, Bethlehem Iron Mines Co., a subsidiary of Bethlehem Steel 
Corp., acquired the properties and assets of Seneca Iron & Steel Co., 
a New York corporation engaged in the manufacture and sale of iron 
and steel products. 

Inclusive of $595,095 of "appreciation," the Seneca Iron & Steel Co. 
had, on July 31, 1932, net assets of $2,959,157 after deducting current 
liabilities. 

The valuation of the consideration paid by Bethlehem Iron Mines 
Co. for these net assets was not reported. However, the composition 
of the consideration and its valuation at the book valuations of its 
components as of December 31, 1931, were as follows : 

Bethlehem Steel Corp., 7-percent cumulative preferred stock, 5,000 

shares, at $100 $300,000 

Bethlehem Steel Corp., no par value common stock, 10,000 shares at 

$137.50 1, 375, 000 

Total 1, 875, 000 

The vending company's operations had been decreasingly profitable, 
as the net sales decreased from $7,265,043 in 1929, to $5,878,780 in 1930, 
and to $3,554,314 in 1931; and its net income for the year declined 
from a profit of $290,230 in 1929, to losses of $144,299 and $190,528 
respectively in 1930 and 1931. 

In comparison with the above-stated valuations and amounts, the 
net assets of Bethlehem Steel Corp. as of December 31, 1931, amounted 
to $681,257,273; its gross sales amounted to $186,541,195, and its net 
income after providing for Federal income taxes amounted to $115,745. 

Acquisition of the capital stock of Tauhman Supply Corp. — ^In De- 
cember 1936, Bethlehem Steel Co., a Bethlehem Steep Corp. subsidiary, 
purchased all of the outstanding capital stock of Taubman Supply 

795355—48 7 



; '1 



i^\ 



92 



REPORT OF FEDERAL TRADE COMMISSION 






1* 






i 



Corp., for an undisclosed consideration. At that date, the acquired 
corporation was engaged in selling oil country supplies, some of which 

it manufactured itself. 

Taubman Supply Corp. had, on June 30, 1936, net assets of $605,506 
after deduction of current liabilities, all of which constituted the 
stockholders' equity. During the year ended on that date, the ac- 
quired corporation's net sales amounted to $4,121,488 and its profit 
amounted to $258,039 before providing for Federal income taxes or to 
$212,184 after deduction of that provision. 

Acquisitions during 7,9^<^.— Bethlehem Steel Corp., through three of 
its subsidiaries, acquired, during 1938, the assets of United Shipyards, 
Inc., Shoemaker Bridge Co., and International Supply Co. 

On June 2, 1938, Bethlehem Shipbuilding Corp., Ltd., a subsidiary 
of Bethlehem Steel Corp., acquired substantially all of the fixed assets, 
the inventories of materials and supplies, and certain other assets of 
United Shipyards, Inc., for $9,469,372 in cash. This company had 
been engaged in the business of building, repairing, and drydocking 
vessels in New York Harbor. 

United Shipyards, Inc., in a letter dated May 2, 1938, to its stock- 
holders, gave the following reasons for selling out to Bethlehem 
Shipbuilding Corp., Ltd., (1) it has been handicapped by a lack of 
working capital and had found it necessary, for several years, to 
rely on bank borrowings; (2) a substantial part of the loss in working 
capital incurred during the year 1937 was directly attributed to labor 
trouble, it having been obliged on April 7, 1937, to grant an 11-percent 
increase in its wage scale; (3) labor cost in the port of New York, 
which had the highest wage scale on the Eastern Seaboard of the 
United States for shipbuilding labor, handicapped the company in 
competing with shipbuilding concerns in other parts of the country 
where the wage scales were materially lower; and (4) in the 9 years 
that it had been in business it had not shown a net profit in any year. 

The consolidated balance sheet of United Shipyards, Inc., and 
its wholly owned subsidiary as of December 31, 1937, showed net as- 
sets (after deducting current liabilities) amounting to $12,895,936.53, 
some of which, however, were not included in the sale. The excluded 
assets, as stated in its letter of May 2, 1938, to its stockholders, were 
cash, notes, and accounts receivable, work in progress, nine parcels of 
unimproved land on Staten Island, N. Y., the leasehold interest in its 
office, two small motor vessels, contracts, and certain office records, 
furniture and fixtures, which, on December 31, 1937, had a book 
valuation in excess of $3,292,542.45. Therefore, on that date, the 
value of its net assets sold to the acquiring corporation could not have 
been in excess of $9,602,394.08. 



THE MERGER MOVEMENT 



93 



United Shipyards, Inc., sustained a net loss during 1937 of $665,- 
441.37. Information as to its net sales for that year is lacking. 

On August 17, 1938, Bethlehem Steel Co., a subsidiary of Bethlehem 
Steel Corp., purchased all the properties and assets of Shoemaker 
Bridge Co. for a consideration valued at $168,024.53. This considera- 
tion consisted of, («) assumption of approximately $7,000, of unpaid 
real estate taxes, {h) assumption of the expenses, up to but not exceed- 
ing $500, of dissolution of the vending company, {c) surrending to 
Shoemaker Bridge Co., and discharging it from liability under 
$220,000 principal amount of its 6-percent first mortgage bonds, pur- 
chased in June 1938, by the acquiring company at a cost of $99,000^ 
{d) surrendering to the vending company, and discharging it from, 
a judgment in favor of the acquiring company in the principal amount 
of $54,337.47, and {e) surrendering to and discharging it from certain 
other debts aggregating $159,410.38 which the acquiring company had 
purchased at a total cost of $7,187.06. 

There being no financial data available for Shoemaker Bridge Co., 
it is assumed that the valuation of the consideration paid by the ac- 
quiring company approximates the value of the properties and assets 
acquired. 

In December 1938, Bethlehem International Supply Co., a sub- 
sidiary of Bethlehem Steel Corp. organized for the purpose, acquired 
the business and assets of International Supply Co., except the stock 
owned by it in Illinois Water Development Co. and in Bradshaw 
Oil & Gas Co. and certain claims and accounts and notes receivable. 
The business of the vending company had been that of operating a 
plant for the manufacture of certain types of oil-well equipment and 
selling oil-well supplies through supply stores and sales offices in 
Kansas, New Mexico, Oklahoma, and Texas. 

In consideration for the assets acquired, Bethlehem-International 
Supply Co. gave the vending company 1,999 shares of the former's 
capital stock (which was purchased for $877,459 in cash by Beth- 
lehem Steel Corp. within the month) and assumed its liabilities, 
which, as of July 31, 1938, aggregated $785,960.94. 

Inasmuch as the book valuation of International Supply Co.'s as- 
sets thus acquired is not reported, their value is estimated at $1,663,- 
419.94. 

The acquired company's net sales and profit data for the year 
preceding the date of acquisition were not reported. 

Control of an estimated $11,433,839 of net assets was thus acquired, 
from these three enterprises, by Bethlehem Steel Corp.; but in so 
doing it expended cash in the amount of $10,453,018, with the net 



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REPORT OF FEDERAL TRADE COMMISSION 



i'i 



II 



result that the actual capital added through acquisition amounted 
to only $980,821. 

Acquisition of the capital stock of Atlas Steel Barrel Corp.— 
Bethlehem Steel Corp., on December 29, 1943, acquired all of the 
issued and outstanding shares (1,195) of the capital stock of Atlas 
Steel Barrel Corp., which was engaged in manufacturing steel barrels 
and pails, for an undisclosed consideration. 

Atlas Steel Barrel Corp. had, on December 31, 1943, net assets 
of $575,850.18 after deduction of current liabilities, all of which 
constituted the stockholders' equity. During the 3 years preceding 
acquisition, the acquired company's net sales amounted to $4,102,953 
in 1941, to $3,460,784 in 1942, and to $3,278,074 in 1943. Its net profit 
before providing for Federal income and excess profits taxes declined 
from $337,497 in 1941, to $304,014 in 1942, and to $127,373 in 1943, 
and after deduction of the tax provision amounted to $136,857, $80,477, 
and $42,373 respectively for the same years. 

In comparison with the above stated valuations and amounts, the 
net assets of Bethlehem Steel Corp. as of December 31, 1942, amounted 
to $692,853,276, its net sales for the year 1942 amounted to $1,495,- 
547,299, and its profit amounted to $165,452,438 before provision for 
Federal income and excess profits taxes or to $25,472,438 after de- 
duction of that provision. 

Acquisition of the capital stocks of American Well di Prospecting 
Co, and PacifiG Coast Forge Co, during iP^^.— During 1944, Beth- 
lehem Steel Co. acquired stock control of American Well & Pros- 
pecting Co. and Pacific Coast Forge Co. 

As of June 30, 1944, Bethlehem Steel Co., a subsidiary of Bethlehem 
Steel Corp., purchased all of the issued and outstanding shares of 
the capital stock of American Well & Prospecting Co., which owned 
and operated a plant at Corsicana, Tex., for the manufacture of oil 
well rotary drilling equipment, for an undisclosed consideration. 

The net assets of the acquired company as of December 31, 1943, 
amounted to $860,201 after deduction of current liabilities, all of which 
constituted the stockholders' equity. 

Information as to American Well & Prospecting Co.'s net sales 
and net income before provision for Federal income and excess profits 
taxes is lacking. However, its operations had been increasingly profit- 
able as its net income after deduction of Federal income and excess 
profits tax provision increased from $127,468 in 1941 and $144,286 
in 1942 and to $206,155 in 1943. 

Also, Bethlehem Steel Co., as of November 30, 1944, acquired all 
of the outstanding capital stock of Pacific Coast Forge Co., which 
owned and operated a plant at Seattle, Wash., for the manufacture of 
bolts, nuts, spikes, rivets, and similar products. 



THE MERGER MOVEMENT 



95 



The balance sheet of the acquired company, as of November 30, 1944, 
showed net assets after deduction of current liabilities, amounting to 
$430,402, all of which constituted the stockholders' equity. 

The consideration paid for this equity, by the acquiring company, 
however, was not disclosed. 

Pacific Coast Forge Co.'s net sales, and net income before pro- 
viding for Federal income and excess profits taxes were not available, 
but the declining profitability of the company was revealed by the 
fact that its net income after deduction of Federal income and excess 
profits taxes decreased from $92,425 in 1942 to $36,098 in 1943 and 
to $26,227 in 1944. 

The result of these two acquisitions was that Bethlehem Steel Corp. 
increased the net assets under its control about $1,290,603, which com- 
pared with the $711,630,375 of its capital at the beginning of that 
year. The acquired companies' combined net income after deduction 
of Federal income and excess profits taxes in the year preceding the 
date of acquisition amounted to $232,382; and this compared with 
$32,124,592 netted by Bethlehem Steel Corp. 

Acquisition of the capital stocks of Buffalo Tank Corp.,, Petroleum, 
Equipment Co.^ and Petroleum Equipment International .^ during 
19i5. — Stock control of Buffalo Tank Corp., Petroleum Equipment 
Co., and Petroleum Equipment International was acquired by Bethle- 
hem Steel Co. during 1945. 

Bethlehem Steel Co., a subsidiary of Bethlehem Steel Corp., hav- 
ing previously acquired 45.5 percent of the outstanding shares of 
the capital stock of Buffalo Tank Corp., purchased, as of January 2, 
1945, the remaining 54.5 percent of such shares, for an undisclosed 
consideration. The acquired company was engaged in the business 
of manufacturing small steel storage tanks and other welded plate 
products. 

Buffalo Tank Corp.'s balance sheet as of December 31, 1944, showed 
a stockholders' equity amounting to $401,556. The company's net 
profit for the year amounted to $63,902 in 1942, to $51,654 in 1943 and 
to $35,003 in 1944. Its net sales for those years were not reported. 

As of February 14, 1945, Bethlehem Steel Co. acquired, for an 
undisclosed consideration, the capital stock of Petroleum Equipment 
Co., which was engaged in the business of selling oil-well supplies 
on the Pacific coast. 

The net assets of the acquired company as of December 31, 1944, 
amounted to $729,687.54, which constituted the stockholders' equity. 

Petroleum Equipment Co.'s net sales amounted to $6,843,250.51 in 
1942, to $10,112,289.71 in 1943, and to $9,662,830 in 1944; and its net 
income after providing for Federal income and excess profits taxes 



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REPORT OF FEDERAL TRADE COMMISSION 



amounted to $39,042.04, $140,899.35, and $128,503.31 in the 3 years, 

respectively. 

Bethlehem Steel Co. also, on February 14, 1945, acquired the out- 
standinfj capital stock of Petroleum Equipment International, which 
sold oil-well supplies for export. Again, the valuation of the consid- 
eration was not disclosed. 

A balance sheet, of the acquired company, as of December 31, 1944, 
showed a stockholders' equity amount in<x to $33,957.83. Sales and 
profit information for the company is lacking. 

By these three acquisitions, Bethlehem Steel Corp. increased the net 
assets under its control about $1,165,201, which related to the 
$757,459,667 of its capital at the beginning of 1945. 

Net sales reiwrted for only one of the three companies amounted to 
$9,662,830.26 in 1944, and net income after deducting provision for 
Federal income and excess profits taxes aggregated $163,506.31 for 

two of them. 

Bethlehem Steel Corp.'s net assets were increased by $395,629,359 as 
a result of the acquisition of the 33 enterprises enumerated above, and 
listed chronologically below. 

Bethlehem Steel Corp. 



Year ac- 
quired 



1916 
1917 
1917 
1917 
1918 
1918 
1920 
1921 
1922 
1922 
1923 
1923 
1925 
1928 
1930 
1930 
1930 
1931 



1931 
1931 
1931 
1931 
1932 
1936 
1938 
1938 
1938 
1943 
1944 
1944 
1945 
1945 
1945 



Company whose assets or capital stocks were acquired 



Pennsylvania Steel Co 

Lehigh Coke Co 

American Iron & Steel Manufacturing Co 

Lackawanna Iron & Steel Co.' 

Cornwall R. R. Co^ - 

Cornwall Iron Co.* 

Jamison Coal & Coke Co.' -- 

Baltimore Dry Docks & Shipbuilding Co. 

Simpson's Patent Dry Dock Co.. 

Lackawanna Steel Co — - 

Midvale Steel <fe Ordnance Co." 

Cambria Steel Company... 

Southwestern Shipbuilding Co.' 

The Atlantic Works -- 

Pacific Coast Steel Co - 

Southern California Iron & Steel Corp — 

Danville Structural Steel Co -- 

McClintic-Marshall Corp.. 

Subtotal... - --- 

Levering <6 Qarrigues Co 

Hay Foundry & Iron Works 

Hedden Iron Construction Co 

Kalman Steel Co 

Seneca Iron & Steel Co 

Taubman Supply Corp.* - 

United Shipyards, Inc.' -- 

Shoemaker Bridge Co... 

International Supply Co.'.. 

Atlas Steel Barrel Corp.* 

American Well & Prospecting Co.* 

Pacific Coast Forge Co.*... 

Buffalo Tank Corp.* 

Petroleum Equipment Co.* — 

Petroleum Equipment International * 

Total... - --- 



Capital incre- 
ment 



$23,067,561 
7. 000, 000 
9, 920. 727 
1,770,000 
889, 493 
605,226 
6, 456. 000 

2, 750. 000 
184, 513 

81, 628, 682 

180,687,003 

900,000 
1, 483, 327 
8, 780, 474 

3, 372, 842 
276.606 

M. 236, 800 



384, 009, 254 

1, 392, 972 

1, 279. 658 

370, 072 

1,000, 2«5 

2,959,157 

605,506 

133,022 

61,838 

7C5, 961 

575, 850 

860.201 

430, 402 

401,556 

729, 687 

33,958 



396, 629, 359 



1 Portion of assets acquired. 
* Acquisition of capital stock. 



THE MERGER MOVEMENT 



REPUBLIC STEEL CORP. 



97 



Prmflon in the industry. — Republic Steel Corp. was rated, on Janu- 
ary 1, 1945, as the third steel producer in order of magnitude in the 
United States. It is primarily an operating company engaged in 
the manufacture and sale of a diversified line of iron and steel 
products, including pig iron, semifinished steel, alloy steels, special 
steels, billets, bars, pipe, hot- and cold-rolled sheets and strip, tin and 
terneplate, bolts and nuts, fabricated material and other items. Also, 
the corporation is a leading manufacturer of alloy steels, including 
stainless steel and high-tensile steels, and it is an important producer 
of steel for the automobile industry and of electrically welded pipe. 
It obtains a large part of its iron ore and coal requirements from its 
own mines, and the balance from mines of companies in which it has 
an interest and by purchase from others. 

On January 1, 1945, the rated capacities of the company's facilities 
were estimated at 9,791,000 net tons of steel ingots and castings, 
5,078.000 net tons of coke, and 6,324,000 net tons of pig iron per annum. 

Orf/ animation of RepuhUe Steel Corp. — Republic Iron & Steel Co. 
was incorporated in New Jersey on May 3, 1899, as a consolidation 
of 24 bar and forge iron manufacturing companies. 

On April 7, 1930, Republic Steel Corp. was incorporated in New 
Jersey, and, pursuant to a plan dated January 15, 1930, it acquired 
the assets and assumed the liabilities of Republic Iron & Steel Co., 
Central Alloy Steel Corp., Donner Steel Co., and the Bourne-Fuller Co. 

Acquisitions by Republic Iron <& Steel Co. and Republic Steel Corp. — 
From January 1, 1915, to the end of 1945, Republic Steel Corp. and 
Republic Iron & Steel Co. (one of its predecessor companies) ac- 
quired, either wholly or in part, 21 independent enterprises, informa- 
tion concerning 13 of which was furnished. During 1928, Republic 
Iron & Steel Co. acquired the properties and assets of the Trumbull 
Steel Co., and Steel & Tubes, Inc. All of the common stock of the 
Trumbull-Cliffs Furnace Co. was acquired on December 31, 1929, and 
during January of 1930 all of Union Drawn Steel Co.'s capital stock 
was purchased. 

On April 8, 1930, the day after Republic Steel Corp. was organized, 
it acquired the properties and assets of Central Alloy Steel Corp., 
Donner Steel Co., and the Bourne-Fuller Co. The Corrigan-Mc- 
Kinney Steel Co.'s properties and assets w^ere acquired on September 
24, 1935: and later in that year a controlling interest in the capital 
stock of Truscon Steel Co. was acquired. Certain assets of Canton 
Tin Plate Corp. were acquired on June 30, 1936. 

During February of 1937, Republic Steel Corp. acquired all of the 
capital stock of Niles Steel Products Co. ; and the properties and assets 



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REPORT OF FEDERAL TRADE COMMISSION 



of Gulf States Steel Co. were acquired on April 8, 1937. On Sep- 
tember 21, 1945, it purchased all of the capital stock of the Stevens 
Metal Products Co. 

Each of these 13 acquisitions is discussed in more detail in the 
following paragraphs. 

Acquisitions during J928.— During 1928 Republic Iron & Steel Co. 
acquired the properties and assets of the Trumbull Steel Co., and Steel 

& Tubes, Inc. 

As of April 26, 1928, Republic Iron & Steel acquired all of the 
properties and assets, and assumed all of the liabilities, of the Trumbull 
Steel Co., which was engaged in the manufacture of pig iron, coke, 
sheet bars, sheets, hot- and cold-rolled strip, and tin plate. 

In consideration for these properties, the acquiring company issued 
a total of 296,030 shares of its common stock, on the basis of one 
share of Republic Iron & Steel Co. common stock for five shares of 
the Trumbull Steel Co. common stock, and 1% shares of Republic 
Iron & Steel Co. common stock for one share of the Trumbull Steel 
Co. preferred stock. 

The Trumbull Steel Co.'s balance sheet as of December 31, 1927, 
showed net assets in the amount of $48,048,866.52. Of this $16,88.9,000 
was offset by funded debt; and the remaining $31,159,866.52 consti- 
tuted the stockholders' equity. 

The valuation of the 296,030 shares of Republic Iron & Steel Co.'s 
common stock that were issued in exchange for this equity was not re- 
ported. However, based upon Republic Iron & Steel Co.'s book valu- 
ation of its common stock of about $161.17 per share, after giving 
effect to the acquisition, the book value of these shares was approxi- 
mately $47,712,225. 

Information as to the acquired company's sales and profits for the 
■ year preceding its acquisition is lacking. 

On October 1, 1928, Steel & Tubes, Inc., a subsidiary of Republic 
Iron & Steel Co. organized for the purpose, acquired all of the prop- 
^ies and assets, and assumed all of the liabilities of Steel and Tubes, 
Inc., which was engaged in the manufacture of structural tubing, rail- 
road tie plates, strip steel, agricultural shapes, light angles, and steel 
pipe and conduit by the electric welding process. 

Steel & Tubes, Inc., had, on June 30, 1928, net assets of $6,809,- 
636.' Of this, $707,574 was offset by long-term indebtedness ; and the 
refeining $6,102,062 constituted the stockholders' equity, of which 

{,237,342 was accumulated profit or surplus. 

The consideration paid by Steel & Tubes, Inc., for these assets con- 
sisted of the execution and delivery of the entire issue of $4,500,000 
principal amount of its 15 year, 6 percent sinking fund debentures, 



THE MERGER MOVEMENT 



99 



all of its authorized class A and class B shares of capital stock (valued 
at $117,000), and the delivery of 31,500 shares of Republic Iron & 
Steel Co. common stock, the value of which was not reported. How- 
ever, based upon Republic Iron & Steel Co.'s book valuation of its 
connnon stock of about $155.45 per share, after giving effect to the 
acquisition, the book value of these 31,500 shares was approximately 
$4,896,667. Thus the total value of the consideration paid, to the 
stockholders of Steel & Tubes, Inc., is estimated at $9,513,667. 

Sales and profit data of the acquired company are not available. 

Through these two acquisitions. Republic Iron & Steel Co. acquired 
control of assets aggregating $54,858,502.52, which, related to its $111,- 
365,950 of capital at the beginning of the year, constituted a capital 
increment of 49.3 percent. 

Acquisitions during WSO.-— On December 31, 1929, and during the 
year 1930, Republic Iron & Steel Co. acquired the common stocks of 
Trumbull-Cliffs Furnace Co. and Union Drawn Steel Co.; and the 
properties and assets of Central Alloy Steel Corp., Donner Steel Co., 
and the Bourne-Fuller Co. 

Republic Iron & Steel Co., having previously acquired 50 percent 
of the common stock of the Trumbull-Cliffs Furnace Co., purchased, 
on December 31, 1929, all of the remaining shares of common stock 
from the Cleveland-Cliffs Iron Co. for an undisclosed consideration. 

Tlie Trumbull-Cliffs Furnace Co.'s balance sheet as of December 
31, 1929, showed net assets in the amount of $8,113,908.23, and com- 
mon stock valued at $500,000. Since the acquiring company owned 
50 percent of the common stock, it is assumed that one-half of the 
value of the common stock, or $250,000, constituted the amount of its 
investment. Thus net assets with a book valuation of $7,863,908.23 

were acquired. 

During the year 1929, the acquired company's net sales amounted to 
$5,587,654.15 ; and its profit amounted to $538,469.34 before provision 
for income tax or to $478,769.34 after deduction of that provision. 

As of January 1, 1930, Republic Iron & Steel Co. purchased all of 
the outstanding common stock of Union Drawn Steel Co. for an un- 
disclosed consideration. At the time of its acquisition Union Drawn 
Steel Co. was reported as bsing the largest producer of cold drawn 
steel products in the world, with plants located in Pennsylvania, 
Ohio, Indiana, Connecticut, and Canada. 

The consolidated balance sheet of Union Drawn Steel Co. and its 
Canadian subsidiary as of December 31, 1929, showed net assets 
amounting to $11,959,148.41, all of which constituted the stockholders' 
equity. During the year ended on that date, the acquired company's 
net sales amounted to $16,266,450.36; and its profit amounted to 



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REPORT OF FEDERAL TRADE COMMISSION 






$1,016,665.45 before providing for income taxes, or to $902,685.45 after 
deducting that provision. 

On April 8, 1930, Republic Steel Corp. acquired all of the properties 
and assets, and assumed the liabilities of Central Alloy Steel Corp., 
Donner Steel Co., and the Bourne-Fuller Co. The consideration paid 
by the acquiring corporation for these assets was 825,000 shares of its 
$100 par value, 6-percent cumulative preferred stock, 1,064,028 shares 
of its no par value common stock, and $181,730 in cash. 

Central Alloy Steel Corp., which was engaged in the business of 
manufacturing carbon, alloy, and stainless steel and steel products, 
had, on December 31, 1929, net assets of $87,802,918.99. Of this, 
$8,694,200 was offset by a funded debt ; and the remaining $79,108,- 
718.99 constituted the stockholders' equity. During the year ended on 
that date, the acquired company's profit amounted to $6,814,594.14 
before provision for income taxes, or to $6,046,594.14 after deduction 
of that provision. Information as to its net sales is lacking. 

Donner Steel Co. was engaged in the manufacture of pig iron, car- 
bon and alloy sheet bars and die-rolled steel products. 

The consolidated balance sheet of Donner Steel Co. and its sub- 
sidiaries as of December 31, 1929, showed net assets amounting to 
$30,844,594.44, represented by a funded debt of $7,269,400, and stock- 
holders' equity of $23,575,194.44. During the year ended on that date, 
the acquired company's profit amounted to $2,112,993.11 before pro- 
viding for income taxes or to $1,882,993.11 after deducting that pro- 
vision. Net sales data for the year are not available. 

The Bourne-Fuller Co., which was engaged in the production of 
pig iron, steel bars, bolts, and nuts, had, on March 31, 1930, net assets 
of $19,877,759.10, all of which constituted the stockholders' equity. 
Sales and profit data for this company are not available. 

Through these five acquisitions the Republic Steel Corp. acquired 
control of assets aggregating $158,348,329.17, part of the payment for 
which was $181,730 in cash, resulting in the acquisition of a net equity 
of $158,166,599.17. This amount, related to the $154,981,378 of capital 
of Republic Iron & Steel Co. at the beginning of the year, constituted a 
capital increment of 102:1 percent. 

The combined profit, in 1929, of four of the acquired companies 
amounted to $10,482,722 before provision for income taxes, and to 
$9,311,042 after deduction of that provision. These amounts, related 
to the corresponding amounts of $11,040,900 and $9,882,900 netted by 
Republic Iron & Steel Co. in 1929, indicates that these acquisitions aug- 
mented the net earning power of Republic Steel Corp. about 94.9 
percent before providing for income taxes and about 94.2 percent after 



THE MERGER MOVEMENT 



101 



deducting that provision. Profit data for the Bourne-Fuller Co. and 
sales information for Republic Iron & Steel Co. are lacking. 

Acquisitioris divnng 1935.— T\\^ properties and assets of the Corri- 
gan-McKinney Steel Co., and control of the capital stock of Truscon 
Steel Co. were acquired by Republic Steel Corp. during the year 1935. 

As of September 24, 1935, Republic Steel Corp. acquired all of the 
properties and assets and assumed all of the liabilities of the Corrigan- 
McKinney Steel Co., which, in addition to its steel, pig iron and coke- 
producing facilities, owned and operated iron ore mines and had ex- 
tensive ore reserves and timber holdings in the Lake Superior District. 
At the time of its acquisition it was estimated that its iron ore reserves 
were in excess of 50,000,000 gross tons, and its reserves of coking coal 
were approximately 44,600,000 tons. 

The consolidated balance sheet of the Corrigan-McKinney Steel Co. 
and its subsidiaries as of September 30, 1935, showed net assets amount- 
ing to $61,683,690.99, represented by mortgages and loans of 
$6,075,248.43, outstanding minority interests in the capital stock and 
surplus of two subsidiary companies of $1,457,952.43, and stockhold- 
er's equity with a book value of $54,150,490.13. 

The consideration paid by the acquiring corporation for this equity 
was $15,361,000, principal amount of its 5i^ percent purchase money 
first mortgage and collateral trust bonds, $2,792,900 of its $100 par 
value, 6 percent cumulative convertible prior-preference preferred 
stock series A, and 698,223 shares of its no par value common stock. 
The valuation of the 698,223 shares of common stock was not reported. 
However, based upon Republic Steel Corp.'s book valuation of about 
$59.73 per share, after giving effect to the acquisition, the book value 
of these shares was approximately $41,701,540.82. Thus the total value 
of the consideration paid by Republic Steel Corp. for an equity of 
$54,150,490.13 was approximately $59,855,440.82, even though the 
acquired company had suffered net losses of $1,403,817 and $1,216,- 
277.74, respectively, during the years ended April 30, 1934 and 1935. 

On September 11, 1935, Republic Steel Corp. offered to acquire from 
the holders of the preferred and common stock of Truscon Steel Co. 
their stock in exchange for preferred and common stocks of Republic 
Steel Corp. on the basis of one-half share of its $100 par value, 6 per- 
cent, cumulative convertible, prior-preference, series A, preferred stock 
and 2 shares of no par value common stock for each share of Truscon 
Steel Co. preferred stock, and four-tenths of a share of Republic Steel 
Corp. no par value common stock for each share of Truscon Steel Co. 
common stock. 



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REPORT OF FEDERAL TRADE COMMISSION 



In October 1935, as a result of this offer, Republic Steel Corp. 
acquired control of both the preferred and common stock issues of 
Truscon Steel Co., which was a large manufacturer of a varied line of 
products, particularly in the building field, consisting of steel-window 
products and steel doors, steel-flooring systems, bridge flooring, steel 
joists, structural and reinforcing steel, a complete line of metal laths 
and accessories, highway reinforcing steel products, steel-faced insula- 
tion products, steel poles for all purposes, pressed and drawn steel 
products, complete steel buildings, a complete line of steeldeck roofs, 

and radio towers. 

Truscon Steel Co.'s balance sheet as of December 31, 1935, several 
months after its acquisition, showed net assets in the amount of 
$11,023,379.02. During the year ended on December 31, 1934, its net 
sales amounted to $11,099,577.83, but its operations resulted in a net 
loss of $358,235.05. 

Control of net assets having an aggregate book value of $72,707,070 
was thus acquired by Republic Steel Corp. during the year 1935. This 
amount, related to the $248,736,619 of capital of the acquiring corpora- 
tion at the beginning of that year, constituted a 29.2 percent increase in 
the capital under its control. 

Sales information for the year preceding acquisition was available 
for Truscon Steel Co. only. Its net sales during 1934 amounted to 
$11,099,577.83, which, related to $96,824,857 of net sales by Republic 
Steel Corp. during the same year, indicates an addition of 11.5 percent 
to the corporation's net sales volume. Both of the acquired companies' 
operations during 1934 were unprofitable, having sustained losses 
aggregating $1,574,512.79. 

Acquisition of the assets of Canton Tin Plate Corp.— As of June 30, 
1936, Republic Steel Corp. acquired the manufacturing plant, inven- 
tory, and certain purchase and sales contracts of Canton Tin Plate 
Corp. for a consideration valued at approximately $643,876, the 
character of which was not disclosed. 

The acquired company was engaged in the manufacture of tin plate 
in its plant that adjoined the Canton, Ohio, plant of Republic Steel 

Corp. 

The Canton Tin Plate Corp.'s balance sheet as of April 30, 1936, 
showed net assets amounting to $514,984.88, which compared to $286,- 
513,169 of capital of Republic Steel Corp. as of December 31, 1935. 
Sales and profit data of the acquired company are not available. 



THE MERGER MOVEMENT 



103 



Acquisitions during i.9^7.— During 1937, Republic Steel Corp. ac- 
quired all of the capital stock of Niles Steel Products Co. and the 
properties and assets of Gulf States Steel Co. 

As of February 1937, Republic Steel Corp. had acquired all of the 
outstanding capital stock of Niles Steel Products Co. for an undisclosed 
consideration. 

The acquired company, which was engaged in the business of manu- 
facturing sheet steel containers and stampings, had, on December 31, 
1936, net assets of $924,043.29, represented by an indebtedness of 
$650,446.34 to the Republic Steel Corp. group, a first mortgage of 
$259,000, and a stockholder's equity of $14,596.95 after the deduction 
of an accumulated deficit of $274,188.05. During the year ended on 
that date, its net sales amounted to $1,661,817.01, and it sustained a 
net loss of $54,741.98. 

On April 6, 1937, Republic Steel Corp. acquired all of the properties 
and assets of Gulf States Steel Co. The vending company's properties 
included an integrated steel plant at Gadsden, Ala., consisting of by- 
product coke ovens, blast furnaces, open-hearth furnaces, blooming 
mill, plate mill, bar mills, rod and wire mills, sheet mills and nail and 
fence machines, as well as extensive iron ore and coal properties. 

The balance sheet of Gulf States Steel Co. as of December 31, 1936, 
.showed net assets amounting to $32,316,735.22, a funded debt of $7,000,- 
000, first preferred stock, together with premium payable and accrued 
dividends in the amount of $2,585,380.73 (cash in a like amount de- 
posited with a trustee for its redemption on January 2, 1937), and a 
common stockholders' equity with a book valuation of $22,731,354.49. 

In consideration for the assets acquired Republic Steel Corp. issued, 
to the holders of Gulf States Steel Co. common stock, 689,981 shares 
of its no par value common stock, the value of which was approximately 
$25,928,694 (based upon Republic Steel Corp.'s book valuation of its 
common stock of about $37.58 per share, after giving effect to the 
acquisition), and assumed the vending company's liabilities. 

The vending company's net sales amounted to $8,801,795.31 in 1935, 
and to $12,778,373.35 in 1936 ; and its net income before provision for 
Federal income taxes amounted to $163,790.08 and $788,380.50, re- 
spectively, in these years, and after deduction of income taxes to 
$141,268.95 and $660,112.30, respectively. 

Control of net assets having an aggregate book value of $33,240,778.51 
was thus acquired by Republic Steel Corp. during the year 1937. 
However, inasmuch as $650,446.34 of Niles Steel Products Co.'s lia- 
bilities was a debt to the Republic Steel Corp. group, and $2,585,380.73 



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REPORT OF FEDERAL TRADE COMMISSION 



of the net assets of Gulf States Steel Co. were to be used for the re- 
demption of its preferred stock on January 2, 1937, the book valuation 
of the net assets acquired amounted to only $30,004,951.44. This 
iimount, related to the $323,232,518 of capital of the acquiring cor- 
poration at the beginning of that year, constituted a 9.3-percent 
increase in the capital under its control. 

The acquired companies' net sales aggregated $14,440,190 in 1936, 
and their net income after providing for income taxes aggregated 
$605,370 for that year. 

In comparison with the above-stated amounts, the net sales of 
Republic Steel Corp. for the year 1936 amounted to $218,317,399, and 
its net income after providing for income taxes amounted to $9,584,299. 
Thus, these two acquisitions may be said to have augmented Republic 
Steel Corp.'s net sales about 6.6 percent, and its profit after deduction 
of income taxes about 6.3 percent. 

Acguisition of the capital stock of the Stevens Metal Products Co.— 
Republic Steel Corp., as of September 21, 1945, purchased all of the 
outstanding shares of capital stock of the Stevens Metal Products Co. 
for $1,004,664 in cash. At the time of acquisition the acquired com- 
pany was engaged in the business of manufacturing steel drums and 

containers. 

The Stevens Metal Products Co. had, on December 31, 1944, net 
assets of $748,763.93, all of which constituted the stockholders' equity. 
The reported purchase price of $1,004,664 was $255,900.07 in excess 

of that amount. 

The net assets of Republic Steel Corp. on December 31, 1944, 
amounted to $353,831,708. Since the acquired equity in the Stevens 
Metal Products Co. was paid for in cash to the stockholders of that 
company, the transaction actually decreased the combined net assets 
of the two enterprises $1,004,664. The amount of cash paid by the 
acquiring corporation was $255,900.07 in excess of the book value of 
the net assets acquired, thereby decreasing the stockholders' equity 

by that amount. 

During the year ended December 31, 1944, the Stevens Metal Prod- 
ucts Co.'s net sales amounted to $2,870,516.15, and its profit amounted 
to $69,097.65 before providing for Federal income and excess profits 
taxes, or to $40,796.72 after deducting that provision. 

In comparison with these amounts of sales and profits, the acquiring 
corporation's net sales for the same year amounted to $527,903,507, 
and its profit amounted to $41,781,486 before provision for Federal 
income and excess profits taxes— or to $10,149,611 after deduction of 
that provision. 



THE MERGER MOVEMENT 



105 



The following is a listing of the acquisitions during the period : 



Republic Steel Corp. 



Yoar 
accjuired 



1928 
192R 
1930 
1930 
1930 
1930 
1930 
1936 
1935 
193() 
1937 
1937 
1945 



Company whose assets or capital stocks were acquired 



The Trumbull Steel Co 

Steel & Tubes, Inc.- 

The Trumbull-Cliffs Furnace Co.i 

Union Drawn Steel Co.'.. -. 

Central Alloy Steel Corp 

Donner Steel Co -- 

The Bourne-Fuller Co... -.- 

The Corrigan-MqKinney Steel Co 

Truscon Steel Co.' ... 

Canton Tin Plate Corp 

Niles Steel Products Co.' 

Gulf States Steel Co 

The Stevens Metal Products Co.» . 

Total 



Capital 
increment 



$48, 048, 867 

6, 809, 636 

7,863,908 

11,959,148 

138, 343, 543 

61. 683, 691 

11, 023, 379 

514,985 

273,597 

29,731,354 

2 255,900 



316, 996, 208 



I Acquistion of capital stock. 
' Capital impairment. 

JONES & LAUGHLIN STEEL CORP. 

Position in the industry.— Jones & Laughlin Steel Corp. was rated 
in 1945 as the fouith largest steel producer in the United States. Its 
oi^erations embrace six major divisions as follows : The manufacture 
and sale of pig iron and a diversified line of rolled steel products con- 
sisting of hot-rolled billets, steel bars, skelp, merchant bars, structural 
shapes, bars for concrete reinforcement and plates, cold finished 
shapes, shafting and tubing, hot- and cold-rolled strip and sheets, 
raili'oad spikes and tie plates, wire rods, wire, wire roi^e, nails and 
staples, tin-mill products, welded and seamless tubular products, steel 
barrels, drums, and asphalt casings, castings, fabricated structural 
columns, girders and trusses; the production of coke for its own use 
and the sale of coke byproducts; the mining of ore and coal and the 
quarrying of limestone; the transportation of ore on the Great Lakes 
and of coal on the Monongahela and Ohio Rivers for use by the cor- 
lx)ration, and the transportation of the corporation's products via the 
Monongahela, Ohio, and Mississippi Rivei-s; the operation of connect- 
ing railroads at Pittsburgh, Aliquippa, and Cleveland; and the man- 
ufacture for the United States Government of certain finished and 
semifinished ordnance and munitions. 

As of January 1, 1945, the rated capacities of the corporation's 
facilities were estimated at 5,024,400 net tons of steel ingots and cast- 
ings, 4,080,000 net tons of pig iron, and 3,432,000 net tons of coke 

per annum. 

Organization of Jones d; Laughlin Steel Corp.— Jonea & Laughlin 
Steel Corp. was incorporated under the laws of the State of Pennsyl- 



■ii 



" • 



106 



REPORT OF FEDERAL TRADE COMMISSION 



r 



M 



vania on December 19, 1922, to acquire the business and assets of Jones 
& Laughlin Steel Co., which had been incorporated in Pennsylvania 
in June 1902, as successor to the former partnership of Jones & Laugh- 
lin, Ltd., established in 1850. 

Acquisitions hy Jones cf' Laughlin Steel Corp.— From January 1, 
1923, to the end of 1945, Jones & Laughlin Steel Corp. acquired, either 
wholly or in part, 19 independent enterprises, information concern- 
ing 13 of which was furnished. It acquired, on July 5, 1928, a con- 
trolling interest in the capital stock of Frick-Reid Supply Corp.; 
the warehouse property and business of Roehm & Davison were ac- 
quired as of June 12, 1929 ; a New Orleans, La., property of Lukens 
Steel Co. was purchased on April 1, 1931 ; also, on July 7, 1931, it pur- 
chased the entire capital stock of Louisiana Erecting Co., Inc., a 
subsidiary of Lukens Steel Co. 

Jones & Laughlin acquired the capital stock of Roy L. Brower Corp. 
during 1934; the business and assets of National Bridge Works were 
acquired on May 16, 1935; a tract of land in Philadelphia, Pa., was 
purchased from Hajoca Corp. on June 26, 1940; also on October 1, 
1940, it purchased from McKeesport Tin Plate Corp. a plant for the 
manufacture of tin plate located at Port Vue, Pa. 

One June 30, 1942, the most important acquisition was made when 
the business and most of the assets of Otis Steel Co. were acquired. 
This enterprise's capital, inclusive of long-tenn borrowings, exceeded 
$35.5 million as of December 31, 1941. 

A Jones & Laughlin Steel Corp. subsidiary acquired, as of Decem- 
ber 8, 1942, the business and most of the assets of Wackman Welded 
Ware Co. ; also, on July 1, 1944, it purchased the business and most 
of the assets of Draper Manufacturing Co. 

The Electric weld Tube Division of Talon, Inc., was purchased by 
Jones & Laughlin Steel Corp. on December 29, 1944; and on October 
i, 1945, one of its subsidiaries acquired all of the outstanding capital 
stock of Mitchell Investment Co. 

Each of these 13 acquisitions is discussed in more detail in the follow- 
ing paragraphs. 

Acquisition of the controlling interest in the capital stock of Frick- 
Reid Supply Corp. — On June 7, 1928, an agreement was entered into 
whereby a company, to be known as Frick-Reid Supply Corp., was to 
be organized under the laws of Pennsylvania, to acquire through 
consolidation the assets and business of Frick-Reid Supply Co. and 
I'rick & Lindsay Co. Both of these companies had been engaged in 
the business of distributing equipment and supplies for drilling and 
operating oil and gas wells and for pipe lines, refineries and pumping 
stations. 



THE MERGER MOVEMENT 



107 



Twenty days later, on June 27, 1928, Jones & Laughlin purchased 
from John A. Roebling's Sons Co. 10,000 shares of the capital stock 
of Frick & Lindsay Co. for $1.6 million in cash. These shares were 
subsequently exchanged for 40,000 shares of the common stock of 
the newly organized Frick-Reid Supply Corp. On July 5, 1928, 
Frick-Reid issued 6,383 shares of its common stock to Jones & Laugh- 
lin for $300,000 in cash. These 46,383 shares gave the acquiring cor- 
poration an interest of approximately 55 percent in the ownership 
of Frick-Reid Supply Corp. Thereafter, from time to time Jones & 
J^aughlin Steel Corp. purchased additional shares of the acquired 
corporation's stock until, on February 29, 1944, it had acquired the 
entire capital stock of Frick-Reid Supply Corp. 

A pro forma balance sheet of Frick-Reid Supply Corp. as of De- 
cember 31, 1927, prepared from the balance sheets of Frick & Lindsay 
Co. and Frick-Reid Supply Co., showed net assets amounting to 
$7,021,640.67. Of this, $3,000,000 was represented by a proposed 
6-percent debenture issue ; and the remaining $4,021,640.67 constituted 
the stockholders' equity represented by 84,706 shares of no par value 
common stock. 

Inasmuch as cash in the amount of $1,900,000 constituted the con- 
sideration paid for the controlling interest in net assets of a book 
valuation of $7,021,640.67, the net increase in the capital under the 
control of Jones & Laughlin amounted to only $5,121,640.67, which 
related to its $191,342,646 of capital as of December 31, 1927, con- 
stituted a capital increment of 2.7 percent. 

Sales and profit data for the year 1927 are not available for either 
the acquired or the acquiring corporations. 

Acquisition' of property and business of Roehm c& Davison. — Jones 
& Laughlin on June 12, 1929, purchased the business and warehouse 
property (consisting of real estate, buildings, and equipment) of 
Roehm & Davison in Detroit, Mich., for a cash consideration of 
$1,641,127.79. 

Rome & Davison had, on December 31, 1928, net assets of $2,103,650 
after deduction of current liabilities. During the year ended on that 
date, the acquired company's profit amounted to $303,658.76 after 
providing for income taxes. 

In consummating this acquisition, Jones & Laughlin Steel Corp. 
expended cash in the amount of $1,641,127.79 with the result that it 
added net assets valued at not in excess of $462,522.21, which compared 
with its $199,736,630 of capital at the beginning of that year. 

Relating the acquired company's 1928 profit to the corresponding 
amount of $15,568,687 netted by Jones & Laughlin, indicates that the 
acquisition added about 2 percent to the net earning power of that cor- 



7953r)o— 48- 



-8 



108 



REPORT OF FEDERAL TRADE COMMISSION 



poration. Net sales data for 1928 are not available for either of these 

companies. 

Acquisitiom dunng 193L—D\\vmg 1981 Jones & Laughlin Steel 
Corp. acquired two New Orleans, La., properties from Lukens Steel 

Co. 

On April 1, 1931, Jones & Laughlin purchased from Lukens Steel a 
warehouse property in New Orleans for the warehousing of steel and 

steel products. 

The depreciated value of the acquired property, as reflected on the 
books of the vending company, at the date of acquisition was $542,- 
571.48, for which the acquiring corporation paid $545,000 in cash. 

The entire capital stock of Louisiana Erecting Co., Inc., a subsidiary 
of Lukens Steel, was purchased for $16,400 in cash by Jones & Laughlin 
on July 7, 1931. The acquired enterprise was a Louisiana corporation 
engaged in the construction business in the city of New Orleans. 

The balance sheet of Louisiana Erecting Co., Inc., for July 7, 1931, 
showed net assets in the amount of $14,225.60, all of which constituted 
the stockholders' equity. During the year ended 6n October 31, 1930, 
the acquired company's net profit amounted to $483.90 after having 
sustained a $29,185.15 loss during the preceding year. 

Through these two acquisitions Jones & Laughlin acquired assets 
valued at $556,797 in exchange for cash in the amount of $561,400 re- 
sulting in a depletion of its capital in the amount of $4,603. 

Acquisition of the capital stock of Roy L. Brower €orp.— On June 
29, 1934, all but 25 shares of the capital stock of Roy L. Brower Corp. 
were acquired by Jones & Laughlin, the principal creditor of that 
corporation, without the payment of any consideration to the owners 
of such shares. On October 27, 1934, Jones & Laughlin acquired the 
remaining 25 shares for a total consideration of $25. The acquired 
corporation had been engaged in the business of jobbing nails hi thv- 
city of New York and had become involved in financial difficulties. 

Roy L. Brower Corp.'s balance sheet, as of June 30, 1934, showed 
current liabilities in the amount of $71,914.07 against total assets of 
only $48,876.95, resulting in a $23,037.12 capital impairment. This 
capital impairment, plus the consideration paid by the acquiring cor- 
poration, resulted in a $23,062.12 depletion of Jones & Laughlin's net 

During the year ended December 31, 1933, Roy L. Brower Corp.'s 
net sales'^amounted to $231,565.96; and its net loss for the year was 
$5,099.83. In comparison with these amounts, the net sales of Jones 
& Laughlin for the year ended December 31, 1933, amounted to 
$44,535,948 ; and it sustained a $5,366,996 net loss for the year. 

Acquisition of th^ assets of National Bridge Works.— On May 16, 
1935, Jones & Laughlin Steel Service, Inc., a wholly owned subsidiary 



THE MERGER MOVEMENT 



109 



of Jones & Laughlin Steel Corp., acquired the business and assets of 
National Bridge Works of Long Island City, N. Y. 

A balance sheet of National Bridge Works as of December 31, 1934, 
showed net assets amounting to $619,101.53, represented by a mort- 
gage debt of $164,500 and stockholders' equity with a book value of 
$454,601.53. 

In consideration for these net assets, the acquiring company as- 
sumed the vending company's $164,500 mortgage debt, paid $65,711.28 
in cash, and delivered $41,200, par value, of 7 percent cumulative pre- 
ferred stock and 412 shares, valued at $74,160 of common stock of 
Jones & Laughlin Steel Corp. The total value of the consideration 
paid was only $345,571.28, or 55.8 percent of the book value of the net 
assets acquired. This is probably accounted for by the fact that the 
vending company's operations had been unprofitable during the years 
immediately preceding the acquisition, it having sustained losses of 
$64,751.49, $13,969.23, and $47, 580.12, respectively, for the years 1932, 
1933, and 1934. 

Inasnuich as cash in the amount of $65,711.28 was part of the con- 
sideration paid for net assets of a book valuation of $619,101.53, Jones 
& Laughlin acquired a net equity of only $553,390.25, which, related 
to its $177,876,004 of capital at the beginning of that year, constituted 
only a slight capital increment. 

Acquisitions during 19Ifi. — During 1940, Jones & Laughlin ac- 
quired part of the assets of Hajoca Corp., and a tin-plate plant from 
McKeesport Tin Plate Corp. 

On June 26, 1940, Jones & Laughlin purchased from Hajoca Corp. 
a tract of land in Philadelphia, Pa., consisting of approximately 7 
acres, upon which several buildings were located. The acquiring 
corporation reported that the purpose of this acquisition was to ob- 
tain a location for a warehouse operation in the city of Philadelphia. 

The depreciated valuation of this property, as reflected on the vend- 
ing company's books, at the date of acquisition was reported at $465,- 
099.08. For this property Jones & Laughlin Steel Corp. paid, in 
cash, $472,750 or $7,650.92 more than its book value. 

Jones & Laughlin, as of October 1, 1940, purchased from McKees- 
port Tin Plate Corp. a plant manufacturing tin plate, located at Port 

Vue, Pa. 

As reflected on the books of the vending company, the depreciated 
value of this plant was $2,745,678.61 as of the date of acquisition. 
The consideration paid by the acquiring corporation was $3,000,000 
in cash, which amount exceeded by $254,321.39 the book valuation of 
the plant acquired. 



II 




1 1 



110 



REPORT OF FEDERAL TRADE COMMISSION 



Tlius, through these two acquisitions, Jones & Laughlin's capital 
>vas depleted in the amount of $261,972.31. Its own capital as of 
December 31, 1939, amounted to $216,510,402. 

Acquisitions during i^4^.— During the year 1942, Jones & Laughlin 
acquired the assets of the Otis Steel Co. and of Wackman Welded 

Ware Co. 

As of June 30, 1942, Jones & Laughlin acquired the business and 
most of the assets of the Otis Steel Co. in Cleveland, Ohio. This 
company, incorporated in Ohio on January 3, 1912, to acquire the 
business and properties of Otis Steel Co., Ltd. (of England), had 
been engaged in the manufacture and sale of steel and steel products. 

The Otis Steel Co.'s balance sheet as of December 31, 1941, showed 
net assets, after deducting current liabilities, amounting to $35,- 
656,076.56. But according to published records the depreciated book 
value of the assets acquired by Jones & Laughlin was only $35,093,727. 

A consideration of $35,078,018.61 was paid for these assets by the 
acquiring corporation and consisted of the following : $918,267.50 in 
cash ; the assumption of $17,308,990.60 of the vending company's in- 
debtedness, of which amount $13,023,000 was the principal amount of 
its outstanding first mortgage 4y2-percent sinking fund bonds; the 
transfer to the Otis Steel Co. of $3,255,725, par value, of 5-percent 
series A cumulative preferred stock, $3,255,725, par value, of 5-percent 
series B cumulative preferred stock, and 359,363 shares of no par value 
common stock (valued at $10,339,310.51) of Jones & Laughlin Steel 

Corp. 

The Otis Steel Co.'s net sales amounted to $24,500,022.31 in 1939, 
to $29,072,621.30 in 1940, and to $41,013,175.89 in 1941; and its profit 
after providing for income taxes amounted to $214,965.24, $717,006.94, 
and $2,169,754.20, respectively, in these 3 years. 

On December 8, 1942, J. & L. Steel Barrel Co., a wholly owned sub- 
sidiary of Jones & Laughlin Steel Corp., purchased the business and 
most of the assets of Wackman Welded Ware Co., which was engaged 
in the manufacture of steel drums and steel containers in its six plants 
located in the States of Missouri, Oklahoma, Louisiana, and Pennsyl- 
vania. In consideration for the assets acquired, J. & L. Steel Barrel 
Co. paid $527,000 in cash. 

Wackman Welded Ware Co., on December 31, 1941, had net assets 
of $752,909.88 after deduction of current liabilities. During the year 
ended on that date, tlie acquired company's net sales amounted to 
$2,821,696.69 ; and its profit for the year amounted to $77,678.83. 

Control of net assets having an aggregate book vahie of $35,846,- 
636.88 was thus acquired by Jones & Laughlin during the year 1942. 
However, to effect these acquisitions, it expended cash in the amount 
of $1,445,267.50, which reduced the value of the increment to a net 



THE MERGER MOVEMENT 



111 



of $34,401,369.38. This increment, related to the $224,290,646 of 
capital of the acquiring corporation at the beginning of that year, con- 
stituted a 15.3-percent increase in the capital under its control. 

The acquired companies' 1941 net sales aggregated $43,834,873 and 
for the same year their profit aggregated $2,247,433. 

In comparison with the above-stated amounts, the acquiring cor- 
poration's net sales for the year 1941 amounted to $216,009,805, and 
its profit amounted to $17,499,983 after providing for Federal income 
taxes. Hence, these acquisitions may be said to have augmented 
Jones & Laughlin's net sales about 20.3 percent, and its profit after 
deduction of income taxes about 12.9 percent. 

Acquisitions during 19H. — The assets of the Draper Manufactur- 
ing Co. and the Electricweld Tube Division of Talon, Inc., were ac- 
quired by Jones & Laughlin during 1944. 

Jones &i Laughlin, through its wholly owned subsidiary J. & L. 
Steel Barrel Co., purcliased the business and most of the assets of the 
Draper Manufacturing Co. on July 1, 1944, for a cash consideration of 
$777,040.68. The vending company owned and operated a plant for 
the manufacture of steel barrels, drums, and other steel containers at 
Cleveland, Ohio. 

The Draper Manufacturing Co.'s balance sheet as of June 30, 1944, 
showed net assets, after deducting current liabilities, amounting to 
$819,028.01. The company's net sales amounted to $2,666,301.42 in 
1941, to $6,779,753.01 in 1942, and to $6,447,8,32.94 in 1943; and its 
net income before provision for Federal income and excess-profits 
taxes amounted to $222,267.06, $835,643.73, and $364,405.13, respec- 
tively, in these years, and, after deduction of income and excess- 
profits taxes, to $120,267.06, $229,843.73, and $94,365.73, respectively. 

On December 29, 1944, Jones & Laughlin purchased the Electric- 
weld Tube Division of Talon, Inc. The assets of this division, con- 
sisting of a plant in Oil City, Pa., equipped to manufacture electric 
welded tubing, had a depreciated valuation of $783,713.94 on the 
books of the vending company at the date of the acquisition. In 
consideration for these assets the acquiring corporation paid $600,000 
in cash. 

Through these two acquisitions during the year 1944, Jones & Laugh- 
lin added net assets of an aggregate book value of $1,602,741.95. 
However, in effecting the acquisitions it expended cash in the amount 
of $1,377,040.68, which reduced the capital increment to a net of only 
$225,701.27, which related to the $253,729,542 of capital of Jones & 
Laughlin at the beginning of the year. 

In comparison with the previously stated amounts for the Draper 
Manufacturing Co.'s sales and profits for the year 1943, the acquiring 
corporation's net sales for that year amounted to $280,676,172, and its 




i 



a 



i 



112 



REPORT OF FEDERAL TRADE COMMISSION 



profit amounted to $31,966,850 before provision for Federal income 
and excess profits taxes or to $11,512,228 after deduction of that provi- 
sion. On the basis of a comparison of these results with the corre- 
sponding results for the acquired enterprise for the same year, as shown 
above, it may be said that this acquisition augmented Jones & Laugh- 
lin's net sales about 2.3 percent, its net income before income and 
excess profits taxes about 1.1 percent, and its profit after deduction of 
income and excess profits taxes only about 1 percent. 

Acquisition of the capital .stock of Mitchell Investment Co.—X^ of 
October 1, 1945, Inter-State Iron Co., a wholly-owned subsidiary of 
Jones & Laughlin Steel Corp., acquired the entire capital stock of 
Mitchell Investment Co., the sole asset of which was a mining property 
in Marquette County, Mich., known as the Rolling Mill Mine. 

Mitchell Investment Co. had, per its August 81, 1945, balance sheet, 
net assets of $8,998, all of which constituted the stockholders' equity. 
For this equity the acquiring company paid $100,008.60 in cash, which 
amount was $91,010.60 in excess of the book valuation of the net assets 

acquired. 

The acquired company's profit for the year 1944 amounted to only 
$451.95, but information as to its sales for that year is lacking. 

Jones & Laughlin obtained through this acquisition a mineral de- 
posit that in its opinion was no doubt worth the amount of the cash 
consideration paid; and, in this sense, the effect of the acquisition was 
neither to increase nor to decrease the capital employed in the acquiring 
company's enterprise but merely to change the form of $100,008.60 
thereof from cash to investment in mineral deposits. 

The effect of these various acquisitions on the capital structure of 
the Jones & Laughl in Steel Corp. is shown below : 

JoneH d Laughlin Steel Corp. 



Year ac- 
quired 



1928 
1929 
1931 
1931 
1934 
1935 
1940 
1940 
1942 
1942 
1944 
1944 
1945 



Company whose assets or capital stocks were acquired 



Frick-Reid Supply Corp.' --- 

Roehm and Davison 

Lukens Steel Co.* ---- 

Louisiana Erecting Co.» 

Roy L. Brower Corp.' 

National Bridge Works 

Hajoca Corp.* 

McKeesport Tin Plate Corp.* 

The Otis Steel Co.» 

Wackman Welded Ware Co 

The Draper Manufacturing Co 

Electricweld Tube Division of Talon, Inc. 
Mitchellln vestment Co.' - 



Total. 



Capital Incre- 
ment 



$5, 



3 

34. 



121,641 
462, 522 

»2,429 

3 2, 174 
3 23,062 
553,390 

3 7,651 
254, 321 
175.460 
225,909 

41,987 
183, 714 
3 91,011 



40, 383, 975 



1 Acquisition of capital stock. 
» Portion of assets acquired. 
3 Capital in'pairment. 



THE MERGER MOVEMENT 



THE YOUNGSTOWN SHEET & TUBE CO. 



113 



Position in the industry.— Ki July 1, 1946, the Youngstown Sheet & 
Tube Co. held fifth place in the iron and steel industry in the United 
States with a total ingot capacity of 4,002,000 net tons. It is primarily 
an operating company principally engaged in the manufacture of 
finished types of steel, particularly flat and tubular steel products. 
Among the most important products of the company are steel-pipe, 
sheets, bars, and tin plate for which the oil and gas industry, the 
automobile industry, the building industry and the container industry 
constitute the principal markets. 

Organization of the Young stovm Sheet d' Tube 6"^.— The Youngs- 
town Sheet & Tube Co. was incorporated under the laws of the State 
of Ohio, on November 23, 1900, as the Youngstown Iron Sheet & Tube 
Co. The name was changed to its present title on May 5, 1905. 

During 1901 and 1902 the company erected its first plant for the 
manufacture of iron pipe and sheets. Morgan Spring Co.'s rod and 
wire mills which adjoined the company's original works were purchased 
in 1909; and in 1912, Western Conduit Co.'s plant at Harvey, 111., 
was purchased. 

Acquisitions hy the Youngstown Sheet d' Tube Co. — From January 
1. 1916, to the end of 1945 the Youngstown Sheet & Tube Co. acquired, 
either wholly or in part, four independent enterprises. During 1916, 
all of the outstanding capitiil stock of the Andrews & Hitchcock Iron 
Co. was purchased by the Youngstown Sheet & Tube Co. The proper- 
ties and assets of The Brier Hill Steel Co. and the Steel & Tube Co. of 
America were acquired during 1923. At the end of 1938 a substantial 
interest in the capital stock of Emsco Derrick & Equipment Co. had 
been acquired. 

Acquisitian of the capital stock of the Andrews d Hitchcock Iron 
Co.— On April 11, 1916, the Youngstown Sheet & Tube Co. purchased 
all of the outstanding capital stock of the Andrews & Hitchcock Iron 
Co. for $2 200,000 in cash. The acquired company's plant, consisting of 
two blast furnaces, in which it manufactured grey forge, malleable and 
Bessemer pig iron, was located at Hubbard, Ohio. 

The Andrews & Hitchcock Iron Co.'s balance sheet as of December 
31, 1916, more than 8 months after its acquisition, showed net assets in 
the amount of $2,527,601.35, all of which constituted the stockholders' 
equity. Inasmuch as the acquiring company paid $2,200,000 in cash 
for this equity, the net assets under its control were increased only 
$327,601.35 which compared wilh the $40,041,940 of capital of the 



II 



II 



i 



I 



I ' 



% 



: 






114 



REPORT OF FEDERAL TRADE COMMISSION 



Youii<rst()wn Sheet & Tube Co. as of January 1, 1916. Sales and profit 
data for the acquiring company are not available. 

Acquisitions during 192S.— The properties and assets of the Brier 
Hill Steel Co. and the Steel & Tube Co. of America were acquired by 
the Youngstown Sheet & Tube Co. during the year 1923. 

On February 28, 1923, the Youngstown Sheet & Tube Co. acquired 
all of the properties and assets, and assumed all of the liabilities, of 
the Brier Hill Steel Co. The vending enterprise manufactured iron 
and steel products in its three plants located in the Youngstown, Ohio, 
District; and at the time of its acquisition, the rated capacities of its 
facilities were estimated at 530,000 tons of pig iron, and 700,000 tons 
of steel ingots per annum. 

The consolidated balance sheet of the Brier Hill Steel Co. and its 
subsidiaries as of February 28, 1923, showed net assets amounting to 
$41,827,279.36, represented by a funded debt of $11,381,437.28, 7-per- 
cent cumulative preferred stock outstanding in the amount of $5,000,- 
000, and a common stockholders' equity with a book value of $25,445,- 

842.08. 

In consideration for these assets, the Youngstown Sheet & Tube 
Co. assumed the funded debt of $11,381,437.28, issued $5,000,000 of its 
7-percent $100 par value cumulative preferred stock in exchange 
for the outstanding preferred stock of the acquired company, and 
187,606 shares of its no par value common stock. The valuation of 
the 187,606 shares of common stock was not reported. However, based 
upon the Youngstown Sheet & Tube Co.'s book valuation of about 
$95.64 per share, after giving effect to the acquisition, the book value of 
these shares was approximately $17,943,391. Thus the total value of 
the consideration paid, by the Youngstown Sheet & Tube Co. for net 
assets with a book valuation of $41,827,279.36 was approximately 
$34,324,828.28, which was probably attributable to the fact that the 
acquired company's operation had resulted in net losses of $3,188,- 
588.39 and $1,171,450.68, respectively, during the years 1921 and 1922. 

On February 28, 1923, the stockholders of The Steel & Tube Co. 
of America ratified the sale of its properties to the Youngstown Sheet 
& Tube Co. However, due to injunction proceedings instituted by 
Allied Chemical & Dye Corp., and By-Products Coke Corp. (minority 
stockholders of the vending company) the sale was not consummated 
until June 30, 1923, at which time all of its properties and assets were 
acquired and its funded debt assumed by the Youngstown Sheet & 

Tube Co. 

The properties of The Steel & Tube Co. of America included the 
following: a steel plant located at Indiana Harbor, Ind., with an 
annual producing capacity of approximately 960,000 tons of steel 



THE MERGER MOVEMENT 



115 






ingots; fully equiped iron ore mines located in Michigan and Wis- 
consin, with iron ore reserves of approximately 33,000,000 tons; 228 
byproduct coke ovens with an annual producing capacity of about 
1,000,000 tons of coke; eight blast furnaces with producing capacity 
of over 1,200,000 tons of pig iron per annum, five of which w«re located 
at South Chicago, 111., one at Indiana Harbor, Ind., and two at May- 
ville, Wis., adjacent to its Wisconsin ore properties. 

The consolidated balance sheet of The Steel & Tube Co. of America 
and its subsidiaries as of June 30, 1923, showed net assets amounting 
to $58,667,008.42, a funded debt of $22,569,203.86, outstanding mi- 
nority interests in the capital stock and surplus of subsidiary com- 
panies of $147,362.99, and a stockholders' equity with a book valuation 
of $35,950,441.57. 

The consideration paid for these assets was reported by the acquir- 
ing company as having amounted to $55,153,797.61, consisting of 
$32,584,593.75 paid in cash to the vending company's stockholders and 
the assumption of the $22,569,203.86 funded debt. To provide the 
cash needed for this acquisition, and also for additional working 
capital, $40,000,000 of 6-percent 20-year debenture gold bonds were 
issued by The Youngstown Sheet & Tube Co. 

The acquired company's gross sales amounted to $29,696,815 in 
1921, and to $46,894,400 in 1922 ; and its net profit for the year 1922 
amounted to $472,420 after having sustained a net loss of $2,571,352 
in 1921. 

Through these two acquisitions, The Youngstown Sheet & Tube Co. 
acquired control of assets aggregating $100,494,287.78, which, related 
to the $80,927,605 of capital of the acquiring company at the be- 
ginning of the year, constituted a capital increment of 124.2 percent. 

As previously stated the gross sales of The Steel & Tube Co. of 
America during 1922 amounted to $46,894,400, which, related to the 
$59,313,950 of gross sales by the acquiring company during the same 
year, indicates an addition to gross sales volume of about 79.1 percent. 

Acquisition of a substantial interest in the capital stock of Einsco 
Derrickdi Equipment Co.—Ks of December 31, 1938, The Youngstown 
Sheet & Tube Co. purchase for $2,209,950 in cash, approximately 
43.8 percent (163,700 shares) of the outstanding shares of common 
stock of Emsco Derrick & Equipment Co. By December 31, 1944, an 
additional 136,904 shares of this common stock had been purchased ; 
hence, at that date The Youngstown Sheet & Tube Co. owned 300,604 
shares, or approximately 80.46 percent, of the total (373,594) shares 
outstanding. The acquiring company still retained this percentage of 
ownership as of July 1, 1946. 



il 



116 



REPORT OF FEDERAL TRADE COMMISSION 



Emsco Derrick & Equipment Co. with four plants located at Los 
Angeles, Calif., Dallas and Houston, Tex., was engaged in the manu- 
facture and sale of steel derricks, a complete line of other oil well 
drilling and pumping equipment, and fabricated steel specialties. 

It was reported that since The Continental Supply Co., a wholly 
owned subsidiary of The Youngstown Sheet & Tube Co., was the 
distributor of tubular steel products in the midcontinent oil fields and 
also was one of the principal distributors of the products of Emsco 
Derrick & Equipment Co., it was believed that the purchase of an 
interest in the latter company would result in better coordination 
between the manufacture and distribution of all of such products. 

Emsco Derrick & Equipment Co.'s balance sheet as of December 31, 
1938, showed net assets in the amount of $3,917,733.19, all of which 
constituted the stockholders' equity. The company's net sales 
amounted to $7,787,754 in 1937 and to $5,218,728 in 1938; and it sus- 
tained a net loss of $230,030 in 1938 after having had a net profit of 
$546,131 in 1937. 

While technical control of Emsco Derrick & Equipment Co. was not 
obtained by The Youngstown Sheet & Tube Co. through the purchase 
of 43.8 percent of its capital stock, in all probability actual control 
was exercised. However, since the acquiring company expended cash 
in the amount of $2,209,950 for this interest, the net assets under its 
control were increased only $1,707,783.19. 

These four acquisitions are summarized as follows: 

The Youngstown Sheet d Tube Co. 



THE MERGER MOVEMENT 



117 



Year 
acquired 



1916 
1923 
1923 
1938 



Company whose assets or capital stocks were acquired 



The Andrews & Hitchcock Iron Co.>. 

Brier Hill Steel Co.. --- 

The Steel & Tube Co. of America 

Emsco Derrick & Equipment Co.L .. 



Total. 



Capital 
increment 



$327, 601 

41.827,279 

58. 667. 008 

1, 707, 783 



102, 529, 671 



Acquisition of capital stock. 



INLAND STEEL CO. 



Position in the industry On January 1, 1945, Inland Steel Co. 

was rated as the seventh steel producer in order of magnitude in the 
United States. Its products include hot- and cold-rolled sheets, tin- 
mill products, hot- and cold-rolled strip, steel bars, standard and 
special section shapes, steel piling, sheared and universal mill plates, 
steel rails, joint bars, tie plates, track spikes and bolts, ingots, blooms, 
billets, slabs, wire rods, pig iion, limestone, coke and coke byproducts. 



Its subsidiaries produce a variety of fabricated steel articles such as 
metal lath, casements, steel drums, barrels, and pails. Joseph T. 
Ryerson & Son, one of its wholly-owned subsidiaries, is said to be the 
largest steel service organization in the United States, serving a large 
number of customei's with a considerable variety of steel and metal 
2>roducts. 

The combined rated capacities of the facilities of the company and 
its wholly owned subsidiaries on January 1, 1945, were estimated at 
3,400,000 net tons of steel ingots and castings, 2,148,400 net tons of 
coke, and 2,236,000 net tons of pig iron per annum. 

Organization of Inland Steel Co. — Inland Steel Co. was incorpo- 
rated under the laws of the State of Delaware on February 6, 1917, and 
succeeded to the assets and business and assumed all of the liabilities 
of a corporation of the same name, which had been incorporated in 
Illinois on October 30, 1893. 

Acquisitions hy Inland Steel Co. — From January 1, 1918, to the end 
■of 1945, Inland Steel Co. acquired control of 12 independent enter- 
j)rises, information concerning 8 of which was furnished. It acquired, 
during 1928, a controlling interest in the capital stock of Inland Tar. 
Co. The names of the other 7 enterprises together with the dates on 
which Inland Steel Co., or its subsidiaries, acquired all of their out- 
standing capital stock are as follows : 

Date Htoek 
wag acquired 

Joseph T. Ryerson & Son, Inc Sept. 30, 1935 

Milcor Steel Co June 30, 1936 

Wilson & Bennett Manufacturing Co Apr. 15, 1989 

The Nevada Corp Dec. 81, 1940 

Hillside Fluor Spar Mines June 1, 1943 

The J. M. & L. A. Osborn Co Oct. 1, 1944 

Dunwoody Iron Co Apr. 1, 1945 

Acquisition of stock control of Inland Tar Co. — During the year 
1928, Inland Steel Co. acquired a controlling interest in the capital 
stock of Inland Tar Co., for an undisclosed consideration. 

Inland Tar Co. had, on December 31, 1927, net assets of $453,388.30 
after deduction of current liabilities, all of which consituted the stock- 
holders' equity. During the year ended on that date, the acquired 
company's net sales amounted to $1,048,231.24 ; and its profit amounted 
to $207,470.60 before providing for Federal income taxes or to $179,- 
595.60 after deduction of that provision. 

The $453,388.30 of acquired net assets compared with $84,975,851 of 
capital of Inland Steel Co. at the beginning of the year 1928. Com- 
parison of the previously stated amounts of profits of the acquired 
company, with Inland Steel Co.'s 1927 net income of $7,800,894 before 
provision for Federal income taxes, and of $6,806,894 after deduction 



!l| 



I 




118 



REPORT OF FEDERAL TRADE COMMISSION 



of that provision, indicates that this acquisition added about 2.7 per- 
cent to the acquiring company's net earning power before deducting 
income taxes, and about 2.6 percent to its net earning power after de- 
duction of that provision. Information as to the acquiring company's 
net sales in 1927 is lacking. 

Acquisition of the capital stock of Joseph T. Ryerson <& Soiulnc. — 
Joseph T. Eyerson & Son, Inc., was incorporated under the laws of 
Delaware during 1935 and on September 30, 1935, it acquired the busi- 
ness and assets of a company of the same name incorporated in Illinois 
on October 30, 1928. 

This company operates steel-service plants in numerous industrial 
cities and supplies its many customers (engaged in practically every 
line of business) with structural shapes, plates, hot-rolled bars, cold 
finished bars, alloy steel bars, sheet and strip steel, stainless steel, build- 
ing products, and miscellaneous products such as rails and accessories^ 
boiler tubes, mechanical tubing, manhole covers and saddles, bolts, 
nuts, washers, rivets, bearings, copper and brass sheets, bars and tub- 
ing, etc. It also renders special service such as cutting to size and 
length, flame cutting of plates and billets to special shapes, punching, 
bending, welding, and fabricating. 

On September 30, 1935, the date on which the Dehiware company 
acquired the assets of the Illinois company, Iidand Steel Co. acquired 
the entire capital stock of the Delaware cori^oration for 240,000 shares 
of its own capital stock. These 240.000 shares of Inland Steel Co.'s 
capital stock, representing 59 percent of the 406.780 shares of Joseph 
T. Eyerson & Son, Inc. (Illinois) capital stock outstanding as of Sep- 
tember 30, 1935, were issued to the stockholders of the Illinois cor- 
poration in exchange for the entire capital stock issue of the Delaware 
corporation. 

The balance sheet of Joseph T. Eyerson &. Son, Inc. (Illinois) as of 
September 30, 19e35, showed net assets, after deducting current liabili- 
ties, amounting to $12,382,649.52, all of which constituted the stock- 
holders' equity. During the year ended December 31. 1934, this com- 
pany's net sales amounted to $14,440,184.69; and its profit amounted 
to $1,588,363.90 before provision for income tax or to $1,380,897.54 
after deduction of that provision. 

The valuation of the 240,000 shares of Inland Steel Co.'s capital 
stock which it issued for this equity was not reported. However, 
based upon Inland Steel Co.'s book valuation of about $48.96 per share, 
after giving effect to the acquisition, the book value of these shares 
was approximately $11,749,586. 

In comparison with the above-stated valuations and amounts, the 
net assets of Inland Steel Co. as of December 31, 1934, amounted to 



THE MERGER MOVEMENT 



119 



$95,244,280; its net sales amounted to $40,404,309, and its net income 
before providing for income taxes amounted to $4,302,003 or to $3,729,- 
890 after deduction of that provision. This acquisition, therefore, 
may be said to have augmented the net assets controlled by Inland 
Steel Co. about 13 percent; its net sales volume about 36 percent; 
its net earning power by about 37 percent, both before providing for 
income taxes and after deduction of that provision. 

Acquisition of the capital stock of Milcor Steel Co. — Inland Steel 
Co., on June 30, 1936, acquired all of the outstanding capital stock 
(89,693 shares) of Milcor Steel Co., which was engaged in the manu- 
facture of sheet-metal products consisting primarily of sheet steel 
building materials, and the sale and distribution, through its own 
warehouses, of such products, and of similar products manufactured 
by others. 

Milcor Steel Co.'s balance sheet as of July 1, 1936, showed net assets 
in the amoimt of $3,571,351.55, all of which constituted the stock- 
holders* equity. For this equity the acquiring company issued 59,000 
shares of its no-par-value capital stock, the book valutation of which 
w^as approximately $3,128,139. This acquired equity, related to the 
$110,108,980 of capital of Inland Steel Co. at the beginning of that 
year, constituted a capital increment of 3.24 percent. 

During the year ended December 31, 1935, the acquired company's 
net sales amounted to $5,459,874.39; and its profit amounted to $506,- 
338.48 before providing for Federal income taxes or to $420,031.96 
after deducting that provision. 

Comparison of these amounts of net sales and profits of the acquired 
company with Inland Steel Co.'s net sales in 1935, in the amount of 
$62,544,872, its profit of $10,967,818 before providing for Federal 
income taxes and of $9,417,818 after deducting that provision, indi- 
cates that this acquisition added about 8.7 percent to the acquiring 
company's net sales volume, over 4 percent to its net earning power 
both before and after income taxes. 

Acquisition of the capital stock of Wilson c& Bennett Manufacturing 
6'^.— In April 1939, Inland Steel Co. acquired, for 45,000 shares of 
its no-par-value capital stock, the entire capital stock (243,000 shares) 
of Wilson & Bennett Manufacturing Co., which was engaged in the 
manufacture and sale of steel drums, barrels, and pails. 

As of December 31, 1938, the book valuation of the 45,000 shares of 
Inland Steel Co.'s capital stock was approximately $2,772,305 ; and on 
that date, the acquired company had net assets of $3,007,708.04. This 
amount, related to the $148,422,052 of capital of Inland Steel Co. as of 
December 31, 1938, constituted an increment through acquisition of 
about 2 percent. 



120 



REPORT OF FEDERAL TRADE COMMISSION 



During the year ended December 31, 1938, Wilson & Bennett Manu- 
facturing Co.'s net sales amounted to $6,544,522.27; and its profit 
amounted to $8,293.17 before provision for income taxes or to 
$7,043.17 after deducting that provision. 

In comparison with the above-stated amounts, the net sales of In- 
land Steel Co. for the same year amounted to $74,058,924, its profit 
before providing for income taxes amounted to $6,036,726 and after 
deduction of that provision to $4,916,203. It thus appears that this 
acquisition augmented Inland Steel Co.'s net sales volume about 8.8 
precent, and its profit both before and after providing for income 
taxes by less than 1 percent. 

Acquisition of the capital stock of the Nevada Corp.— On or about 
December 31, 1940, Inland Steel Co. acquired all of the outstanding 
capital stock of The Nevada Corp. for an undisclosed consideration. 
This corporation was liquidated and dissolved during the year 1941 
and its principal assets, consisting of reserve mining properties, were 
tnmsferred to The Nevada Land Co., an Inland Steel Co. subsidiary. 

The Nevada Corp.'s balance sheet as of December 31, 1940, showed 
net assets, after deducting current liabilities, in the amount of 
$639,780.65, which compared to the $154,741,025 of capital of the 
acquiring company at the beginning of that year. Data on the ac- 
quired corporation's sales and profits are not available. 

Acquisition of the capital stock of Hillside Fluor Spar Mines.— 
As of June 1, 1943, Inland Steel Co. purchased the entire capital stock 
of Hillside Fluor Spar Mines, which owned and operated a fluorspar 
property in the Kentucky-Illinois District. According to Inland 
Steel Co.-s annual report for 1943 this acquisition was made to further 
round out its integration by owning its own fluorspar reserve. 

Hillside Fluor Spar Mines' balance sheet as of May 31, 1943, showed 
a stockholders' equity amounting to $363,316.37. The company also 
had outstanding mineral rights purchase contracts aggregating 
$51,000, of which $4,000 was payable within the ensuing year. The 
company's net sales amounted to $326,070.67 in 1940, to $631,832.81 
in 1941 and to $665,327.22 in 1942 ; and its net income before provision 
for Federal income and excess profits taxes amounted to $41,626.29, 
$118,919.87, and $73,198.39, respectively, in these years, and after de- 
duction of income and excess profits taxes, to $33,926.29, $63,146.34, 
and $54,648.39, respectively. For this equity Inland Steel Co. paid 
$563,115 in cash, or $199,798.63 more than its book valuation. 

Inland Steel Co. obtained through this acquisition a mineral reserve 
that, in its opinion, was no doubt worth the amount of the cash paid; 
and, in this sense, the effect of the acquisition was neither to increase 
nor to decrease the capital employed in the acquiring company's enter- 



THE MERGER MOVEMENT 



121 



prise, but merely to change the form of $563,115 thereof from cash to 
investment in mineral reserves. 

Acquisition of the capital stock of the J. M. di L. A. Oshorn Co. — All 
of the outstanding capital stock of the J. M. & L. A. Osborn Co. was 
acquired, on October 1, 1944, by Milcor Steel Co., a wholly-owned 
subsidiary of Inland Steel Co. The business of the acquired company 
was the manufacture and sale of metal products consisting primarily 
of sheet steel building materials. 

The J. M. & L. A. Osborn Co. had, on October 1, 1944, net assets of 
$1,491,474.49, all of which ccmstituted the stockholders' equity. The 
reported purchase price of $1,691,800 was $200,325.51 in excess of that 
amount. 

The acquired company's net sales amounted to $4,749,623.67 in 1941, 
to $3,202,301.31 in 1942 and $3,349,214.15 in 1943; and its profit before 
providing for Federal income and excess profits taxes amounted to 
$381,992.98, $159,629.54. and $192,358.22, respectively, in these years 
and after deduction of income and excess profits taxes, to $182,593.12, 
$100,315.20, and $107,676.68, respectively. 

Acquisition of the capital stock of Dunwoody Iron Co. — Inland Steel 
Co., having owned one-half of the capital stock of Dunwoody Iron 
Co. for several years, acquired, on April 1, 1945, all of the remaining 
shares for an undisclosecl consideration. The acquired company was 
engaged in the business of mining iron ore in the Mesabi Range of 
Minnesota. 

A balance sheet of Dunwoody Iron Co. as of December 31, 1944, 
showed net assets amounting to $229,822.44. Of this, $80,063.57 was 
offset by advances by stockholders for capital expenditures ; and the 
remaining $149,761.87 constituted the stockholders' equity. At this 
date, the acquiring company had $45,030 of its capital invested in the 
acquired company so that the book valuation of the net assets acquired 
could not have been in excess of $184,792.44. Dunwoody Iron Co.'s 
sales and profit data for the year ended December 31, 1944, are lacking. 

The acquisitions are summarized below : 

Inland Steel Co. 



Yfar 
acquired 



1928 
1935 
1936 
1939 
1940 
1943 
1Q44 
1945 



Company whose capital stocks were acquired 



Inland Tar Co.- - --- 

Joseph T. Ryerson & Son, Inc.. 

Milcor Steel Co - 

Wilson & Bennett Manufacturing Co 

Tl e Nevada Corp.. 

Hillside Fluor Spar Mines.. 

The J. M. & L. A. Oshorn Co.. 

Dunwoody Iron Co 

Total 



Capital in- 
crement 



$453, 3S8 


12.382,649 


3.571,351 


3, 007, 708 


639. 780 


1 199. 799 


1 200, 326 


184, 792 



19. 839. 543 



Capital impairment. 



l! 



II 



III 



111 






122 



REPORT OF FEDERAL TRADE COMMISSION 
THE AMERICAN ROLLING MILL CO. 



Positwn in the industry. — ^The American Rolling Mill Co., an oper- 
ating company, was rated among the largest 10 steel producers in the 
United States as of January 1, 1945. It is an exclusive manufacturer 
of high-grade sheet metal and has a diversified business serving all 
users of sheet metal. The principal consumers of the company's 
products are the automobile, building, railroad, metal container, 
machinery, oil, gas and mining, and agricultural machinery industries. 
The company had also developed a special process for continuous 
rolling of steel sheets which it permits certain other steel producers 
to use under license agreements. 

The combined rated capacities of the facilities of the ccmpany and 
its wholly owned subsidiaries on January 1, 1945, were estimated at 
3,268,000 net tons uf steel ingots and castings, 768,000 net tons of 
coke, and 1,594,000 net tons of pig iron per annum. 

Organization of The American Rolling MUl Co.— A company by the 
name of The American Eolling Mill Co. was incorporated December 
29, 1899, in New Jersey, and in 1905 it purchased the plant and good 
will of the Muskingum Valley Steel Co. at Zanesville, Ohio. 

On January 23, 1917, a plan of reincorporation of The American 
Rolling Mill Co. and consolidation with The Columbus Iron & Steel 
Co. was submitted to the stockholders of the New Jersey company. 
This plan was approved, and on June 29, 1917, the American Rolling 
Mill Co. (Ohio) was incorporated under the laws of Ohio. Two days 
later, on July 1, 1917, the new company acquired the business and assets 
of the two previously named companies by exchanging its stock for 
their stocks on the basis of share for share and dollar for dollar of 
par value — all shares of stock exchanged being of $100 par value each. 
Acquimtions by the American Rolling Mill Co. — From June 30, 1915, 
to the end of 1945, the American Rolling Mill Co. acquired more than 
_,0 independent enterprises, information concerning 13 of which was 
furnished. About July 1, 1917, it acquired the assets and business 
of The Columbus Iron & Steel Co. ; the business and assets of Ashland 
Iron & Mining Co. were acquired in December 1921; Forged Steel 
Wheel Co.'s assets were acquired as of August 1, 1927; also, during 
1927 it purchased a controlling interest in the capital stock of 
Norton Iron Works, Inc. 

All of the outstanding capital stock of Lyle Culbert & Road Equip- 
ment Co. was purchased during 1929 ; and, on June 19, 1930, the assets 
^f Sheffield Steel Corp. were acquired. 

During 1934 the physical properties of Belfont Steel & Wire Co. 
-were acquired in a bankruptcy sale ; alsOj during this year, a wholly- 



^ 



THE MERGER MOVEMENT 



123 



owned subsidiary acquired, by lease, the two following properties: 
East Works of Scullin Steel Co.'s St. Louis, Mo., plant; and the steel 
plant of the Sand Springs Home at Sand Springs, Okla. 

As of October 1, 1935, the assets of Calco Iron Pipe, Ltd., a holding 
company, were acquired; all of the capital stock of Hamilton Coke 
& Iron Co. was acquired as of April 1, 1936; by February 1937 a sub- 
stantial interest in the capital stock of Rustless Iron & Steel Corp. 
had been acquired; and, on December 21, 1942, all of Colcord Coal 
Co.'s outstanding capital stock was purchased. 

Each of these 13 acquisitions is discussed in more detail in the 
following paragraphs. 

Acquisition of the assets of The Columhus Iron <& Steel Co.— About 
July 1, 1917, The American Rolling Mill Co. (Ohio), which had been 
in existence only since June 29, 1917, acquired the assets and business 
of its predecessor company The American Rolling Mill Co. (New 
Jersey ) and of the Columbus Iron & Steel Co. 

The Columbus Iron & Steel Co. which was incorporated on Novem- 
ber 21, 1899, in Ohio, and which had two blast furnaces located on 100 
acres of land at South Columbus, Ohio, limestone quarries at West 
Columbus, Ohio, Lake Superior ore properties, coal mines and coke 
ovens at Marting, W. Va., and byproduct coke ovens at Portsmouth, 
Ohio, had been engaged in the production of pig iron, a substantial 
part of which had been sold to The American Rolling Mill Co. (New 

Jersey). 

There are no financial data available for The Columbus Iron & Steel 
Co. at, or shortly prior to, July 1, 1917. However, the consolidated 
balance sheet of the American Rolling Mill Co. (Ohio) as of July 1, 
1917, after effecting the acquisitions, showed net assets amounting to 
$22,230,672, while the New Jersey company's June 30, 1917, balance 
sheet showed net assets of only $15,992,586. Therefore, it is assumed 
that the difference of $6,238,086 between these two amounts represents 
a fair valuation of the net assets acquired from The Columbus Iron 

& Steel Co. 

In effecting this acquisition. The American Rolling Mill Co. (Ohio) 
issued, to the stockholders of The Columbus Iron & Steel Co., 10,000 
shares of its $100 par value common stock and 5,000 shares of its $100 
par value 6 percent preferred stock, a total value of $1,500,000 which 
was the value of the outstanding capital stock of the vending company. 

By this acquisition, the capital of the Ohio corporation was 39 per- 
cent more than its predecessor New Jersey corporation. 

Acquisition of the assets of Ashland Iron <& Mining Co.— The Amer- 
ican Rolling Mill Co., in December 1921, acquired the assets and busi- 
ness of Ashland Iron & Mining Co. which was engaged in the manufac- 

795355 — 48 9 



111 






M 



i 



t 
\ 



124 



REPORT OF FEDERAL TRADE COMMISSION 



ture and sale of pig iron, semifinished steel products such as billets, 
blooms, slabs and sheet bar, steel sheets, and coal mining. 

A balance sheet of Ashland Iron & Mining Co. as of December 31, 
1921, showed net assets (after deducting current liabilities) amount- 
ing to $10,676,394.23. 

In consideration for these net assets, the acquiring company paid 
39.875 shares of its $25 par value common stock, $996,875, and as- 
sumed the vending company's liabilities in the amount of $5,046,011.83. 

Inasmuch as $1,360,666.23 of the vending company's liabilities was 
a debt to the American Rolling Mill Co., the book valuation of the 
net assets acquired amounted to only $9,315,728, which, related to the 
$34,382,247 of capital of the acquiring company at the beginning of 
that year, constituted an increment of 27.1 percent. Sales and profit 
information for the year 1921 were not available. 

Acquisitions during iP^7.— During the year 1927, The American 
Rolling Mill Co. acquired the assets of Forged Steel Wheel Co. and 
stock control of Norton Iron Works, Inc. 

As of August 1, 1927, the American Rolling Mill Co. acquired the 
properties comprising the Butler (Pennsylvania) works, inventories, 
certain contracts, patent rights, and 29,594 shares of a total of 30,000 
outstanding shares of the common stock of The Columbia Steel Co. 
(Ohio) from Forged Steel Wheel Co. Shortly after acquiring these 
assets, the American Rolling Mill Co. transferred them, exclusive of 
the patent rights, to Columbia Steel Co. (Pennsylvania) in exchange 
for its entire capital stock. 

Immediately prior to the acquisition, Forged Steel Wheel Co. was 
engaged in manufacturing and selling hot-rolled coils and sheets, cer- 
tain grades of cold-rolled sheets, and forged steel railroad car wheels, 
and the Columbia Steel Co. (Ohio) in rolling, processing, and selling 
steel strip. 

There being no information available as to the financial position of 
the vending company at, or shortly prior to, the date of this acqui- 
sition, it is assumed that the consideration paid in the amount of 
$15,823,182, consisting of $2,500,000 principal amount of The American 
Rolling Mill Co.'s 5-percent serial notes, $5,000,000 principal amount 
of first mortgage serial 6-percent gold bonds of Columbia Steel Co. 
(Pennsylvania), $5,000,000 par value of The American Rolling Mill 
Co.'s 6-percent series A cumulative preferred stock, and $3,323,182.04 in 
cash, constitutes an approximation of the value of the assets acquired. 

The American Rolling Mill Co., having previously acquired approx- 
imately 36 percent of the outstanding shares of the capital stock of 
Norton Iron Works, Inc., purchased, during 1927 and 1928, practically 
all of the remaining shares and merged it late in 1928. The acquiring 



THE MERGER MOVEMENT 



125 



company obtained a controlling interest during 1927 for an undisclosed 
consideration. 

According to information obtained from The American Rolling Mill 
Co., Norton Iron Works, Inc., had been shut down for some years prior 
to the acquisition, but it had previously produced pig iron, wire, barbed 
wire, wire nails, wire cloth, and cut nails. Its wire drawing equip- 
ment and nail machines were obsolete and certain of its buildings 
badly deteriorated. It is reported that The American Rolling Mill 
Co.'s purpose in acquiring the enterprise was to obtain its blast furnace 
and auxiliary equipment, for the purpose of replacing the pig iron 
productive capacity of a blast furnace just previously abandoned. 

Norton Iron Works, Inc., had, on February 28, 1927, net assets of 
$2,525,202.07 after deduction of current liabilities. Of this, $846,200 
was an indebtedness to The American Rolling Mill Co. ; and the re- 
maining $1,679,002.07 constituted the stockholders' equity. 

Information as to the acquired company's sales and profits for the 
year preceding its acquisition is lacking. 

Through these two acquisitions. The American Rolling Mill Co. ac- 
quired control of assets aggregating approximately $18,348,384, part 
of the payment for which was $3,323,182 in cash and the assumption 
of an $846,200 debt to itself, resulting in the acquisition of a net equity 
of approximately $14,179,002. This amount, related to $53,511,800 of 
capital of the acquiring corporation, exclusive of its previous invest- 
ment in the capital stock of Norton Iron Works, Inc., at the beginning 
of that year, constituted a capital increment of 26.5 percent. 

Acqifisition of the capital stock of Lyle Culvert cf' Road Equipment 
Co.—T\\Q American Rolling Mill Co., during 1929, purchased all of the 
outstanding capital stock of Lyle Culvert & Road Equipment Co., for 
$295,334.64 in cash. At the time of acquisition the acquired company 
was engaged in the manufacture and sale of steel culverts and metal 
road signs and the sale of certain road machinery and some miscel- 
laneous items. 

Lyle Culvert & Road Equipment Co. had, on February 28, 1929, net 
assets of $282,467.09 after deduction of current liabilities, all of which 
constituted the stockholders' equity. The reported purchase price of 
$295,334.64 was $12,867.55 in excess of that amount. 

The net assets of The American Rolling Mill Co. on December 31, 
1928, was $91,051,443. Since the acquired equity in Lyle Culvert & 
Road Equipment Co. was paid for in cash to the stockholders of that 
company, the transaction actually decreased the combined net assets 
of the two enterprises $295,334.64. The amount of cash paid by the 
acquiring company was $12,867.55 in excess of the book value of 






126 



REPORT OF FEDERAL TRADE COMMISSION 



the net assets acquired. The acquired company's sales and profit data 
for the year 1928 are not available. 

Acquisition of the assets of Sheffield Steel Corp. — On June 19, 1930, 
The American Rolling Mill Co. acquired the assets of Sheffield Steel 
Corp., which was engaged in the business of manufacture and sale of 
steel billets, bars, rods, road fabric, commodity sheets and light plates, 
tie plates, light structurals, bolts and nuts, spikes, wire and wire mill 
products, and other miscellaneous steel products. 

Sheffield Steel Corp.'s balance sheet as of May 31, 1930, showed net 
assets (after deducting current liabilities) amounting to $12,218,- 
993.65. The corporation's net sales amounted to $6,025,592.76 in 1927, 
to $6,984,862.48 in 1928 and to $9,531,554.35 in 1929; and its net in- 
come before provision for Federal income taxes amounted to $766,- 
871.94, $1,222,679.92, and $1,373,880.04, respectively, in these years 
and, after deduction of income taxes, to $663,871.94, $1,094,979.92, and 
$1,216,880.04 in the three years, respectively. 

The consideration paid by The American Rolling Mill Co. aggre- 
gated $7,500,000 and consisted of $522,100 in cash, 200,000 shares of its 
$25 par value common stock and 19,779 shares of its $100 par value 
series B, cumulative preferred stock. 

Inasmuch as cash in the amount of $522,100 was part of the con- 
sideration paid for net assets of a book valuation of $12,218,993.65, The 
American Rolling Mill Co. acquired a net equity of only $11,696,893.65, 
which, related to its $93,560,356 of capital at the beginning of the 
year, constituted a capital increment of 12.5 percent. 

In comparison with the previously stated amounts for sales and 
profits, the acquiring company's net sales for the year 1929 amounted 
to $70,434,233, and its profit amounted to $6,729,206 before provision 
for Federal income taxes or to $6,110,570 after deduction of that pro- 
vision. On the basis of a comparison of these results with the corre- 
sponding results for the acquired enterprise for the same year, as 
shown above, it may be said that this acquisition augmented The 
American Rolling Mill Co.'s net sales about 13.5 percent, and its profit 
after deduction of income taxes about 19.9 percent, its net income before 
income taxes about 20.4 percent. 

Acquisitions during 193 Jf,, — The properties of Belfont Steel & Wire 
Co. were acquired and the East Works of Scullin Steel Co., and the 
steel plant at Sand Springs, Okla., owned by Sand Springs Home 
were leased by The American Rolling Mill Co. group during 1934. 

The American Rolling Mill Co., during 1934, acquired (in a bank- 
ruptcy sale) the land, buildings, machinery, and other physical 
properties of Belfont Steel & Wire Co. This plant, while equipped 



THE MERGER MOVEMENT 



127 



to produce steel wire and nails, had been shut down for a number of 
years immediately preceding its acquisition. 

In consideration for these properties the acquiring company paid 
$39,614.95 in cash and $325,000 principal amount of Belfont Steel & 
Wire Co.'s bonds (valued by the court at $36,385.05) owned by The 
American Rolling Mill Co. 

There being no information as to the vending company's financial 
position at, or shortly prior to, the date of its acquisition, it is assumed 
that the courts' valuation of $76,000 is equitable. However, the con- 
sideration paid in cash and the face value of the bonds of the acquired 
company owned by the acquiring company amounted to $364,615 or 
$288,615 in excess of the courts' valuation. 

Sheffield Steel Corp., a wholly owned subsidiary of The American 
Rolling Mill Co., during 1934, leased the East Works of Scullin Steel 
Co.'s St. Louis, Mo., plant. Although these works were equipped to 
produce steel billets, certain light structural shapes, railroad tie plates, 
merchant and reinforcing bar, and spikes, they had been shut down 
during the 6 months immediately preceding their acquisition by lease. 

Under the terms of the lease the annual rental was at the rate of 
$5,000 per month plus one-third of the amount by which annual net 
profits (before income taxes) exceeded the total of $60,000 and an 
amount equal to 6 percent of the average monthly working capital 
used by Sheffield Steel Corp. in the operation, and if such total was 
more than such net profits, the annual rental was subject to adjustment 
on the basis that such total of $60,000 plus such 6 percent of working 
capital bore to such net profits. 

The acquiring company reported that it had no knowledge as to 
the depreciated valuation of the leased properties on the Scullin Steel 
Co.'s books ; also this lease was cancelled in 1945. 

In 1934, Sheffield Steel Corp., a wholly-owned subsidiary of The 
American Rolling Mill Co., and others organized Tulsa Steel Corp. 
Sheffield Steel Corp. owned beneficially 50 percent of the voting' stock 
and exercised a limited control of Tulsa Steel Corp. under the provi- 
sions of a voting trust agreement which entitled it to designate three 
directors of a total of five, the other two directors to be designated 
by the holders of the other 50 percent of the stock. 

During 1934, the Sand Springs Home Steel Plant located at Sand 
Springs, Okla., was leased by Tulsa Steel Corp. In 1936 this lease 
was terminated and Sheffield Steel Corp. leased the properties. 

Although this plant was equipped to produce steel ingots, billets, 
slabs, reinforcing bars and similar products, it had been shut down 
for some time immediately prior to the time it was leased by Tulsa 
Steel Corp. 



1 



ii 



128 



REPORT OF FEDERAL TRADE COMMISSION 



The annual rental payable under the terms of the lease to Tulsa Steel 
Corp. was 50 cents per ton during the first year and $1 per ton during 
subsequent years on all finished steel products manufactured, sold and 
shipped, subject to a minimum rental of $40,000 for the 4-year period 
beginning after the first year ; and under the lease to Sheffield Steel 
Corp. the annual rental was $1 per net ton on finished steel products 
and 25 cents per net ton on semifinished products (ingots, billets, and 
slabs) manufactured at and shipped from the plant, and 25 cents per 
net ton on products not manufactured at the plant but shipped there- 
from, subject to a minimum rental of $30,000 over a period of five 
years. 

Again The American Rolling Mill Co. reported that the depreciated 
valuation of the leased properties on the books of the lessor was not 
known by the lessee. 

Even though the properties of three enterprises were acquired by 
The American Rolling Mill Co. group during the year 1934, only the 
valuation of the net assets acquired from Belfront Steel & Wire Co. is 
available. And this valuation of $76,000 compared to the considera- 
tion paid valued at $364,615 indicates a dissipation of $288,615 of the 
acquiring company's capital. This amount compared with the $99,913,- 
437 of capital of The American Rolling Mill Co. at the beginning of 
1934. 

Acquisition of the assets of Calco Iron Pipe, Ltd. — As of October 1, 
1935, The American Rolling Mill Co. acquired the assets of Calco Iron 
Pipe, Ltd., a holding company, not itself actively engaged in manu- 
facturing but owning, directly or indirectly, all of the outstanding 
capital stock of the following companies : California Corrugated Cul- 
vert Co., Western Metal Manufacturing Co. of Arizona ; Wilson Tank 
& Culvert Co., The R. Hardesty Manufacturing Co., The Colorado Cul- 
vert & Flume Co., Pure Iron Culvert & Manufacturing Co., Washing- 
ton Corrugated Culvert Co., Western Metal Manufacturing Co. of 
Texas, The Lone Stare Culvert Co., Fort Worth Tank & Culvert Co., 
and F. K. Simonds Co. These companies, with the exception of F. K. 
Simonds Co., were engaged in manufacturing and selling steel culverts 
and other drainage products, spiral welded and straight seam steel 
pipe, steel tanks, and other minor fabricated steel products. F. K. 
Simonds Co. operated a grey-iron foundry, a substantial part of the 
product of which was used by California Corrugated Culvert Co. and 
one or two of the other companies in the manufacture of drainage 
gates and other fabricated products. 

Calco Iron Pipe, Ltd., had, on December 31, 1934, net assets of 
$2,241,399.96 after deduction of current liabilities. During the year 
ended on that date the acquired company's profit amounted to 
$T5,377.79. 



THE MERGER MOVEMENT 



129 



In comparison with the above-stated amounts, the net assets of The 
American Rolling Mill Co. as of December 31, 1934, amounted to 
$99,774,373, and its net income after providing for income taxes 
amounted to $966,566. It thus appears that this acquisition augmented 
the net assets controlled by The American Rolling Mill Co. about 2.3 
percent, and the profit after deduction of income tax provision about 
7.8 percent. 

Acquisition of the capital stock of Hamilton Coke & Iron Co. — The 
American Rolling Mill Co. and an unaffiliated corporation organized 
Hamilton Coke & Iron Co., in 1927, to acquire a blast furnace and 
auxiliary properties, not then in operation, from Hamilton Furnace 
Co. The ownership of the new company was divided equally between 
the two organizing companies. 

As of April 1, 1936, the American Rolling Mill Co. acquired control 
of Hamilton Coke & Iron Co. for an undisclosed consideration. 

From the time of its organization, the acquired company was en- 
gaged in the manufacture of pig iron, coke, gas, and certain other coke- 
oven and blast furnace byproducts and provided molten and cold pig^ 
iron for The American Rolling Mill Co.'s steel melting operations ia 
its Middletown, Ohio, works. 

The balance sheet of Hamilton Coke & Iron Co. as of December 31,. 
1935, showed net assets, after deducting current liabilities amounting 
to $6,203,120.81. However, on that date The American Rolling Mill 
Co.'s records showed their investment (at cost) of a r,0-percent owner- 
ship, in the acquired company at $2,393,()83.40. Thus, by acquiring 
full ownership of Hamilton Coke & Iron Co. only Jf3 809,437.41 of net 
assets were added by the acquiring company. This amount, related to 
the $109,584,411 of' capital of The American Rolling Mill Co. as of 
December 31, 1935, constituted a capital increment of 3.5 percent. 

During the year 1935, Hamilton Coke & Iron Co.'s net sales 
amounted to $6,733,851.34; and its profit amounted to $601,445.62 
before provision for income taxes or to $492,095.62 after deduction of 
that provision. 

In comparison with the above-stated amounts, the net sales of The 
American Rolling Mill Co. for the year 1935 amounted to $76,625,750, 
its net income before provision for income taxes amounted to $4,928,972 
and after deduction of that provision to $4,313,756. Thus the etfect 
of this acquisition of the other half of the stock of Hamilton Coke & 
Iron Co. appears to have increased The American Rolling Mill Co.'s 
net earning power before providing for income taxes about 6.1 percent 
and about 5.7 percent after deduction of that provision. Inasmuch as 
most of the output of Hamilton Coke & Iron Co. had been sold to the 
two companies that controlled it and, after this acquisition was prob- 



\ 



130 



REPORT OF FEDERAL TRADE COMMISSION 



i 



ably sold to The American Rolling Mill Co. itself, to this extent this 
acquisition of full control did not augment the sales volume of the 
acquiring organization : Only to the extent of this subsidiary's unknown 
volume of sales to unaffiliated customers did this acquisition augment 
the sales volume of the acquiring organization. 

Acquisition of a substantial interest in the capital stock of Rustless 
Iron d' Steel Corp. — The American Rolling Mill Co., from August 
1986 through Februaiy 1937, purchased and acquired through exchange 
of its common stock approximately 47 percent (403,700 shares) of the 
outstanding shares of common stock of Rustless Iron & Steel Corp. 
By February 1944 an additional 151,074 shares of this common stock 
had been acquired so that at that date The American Rolling Mill Co. 
owned 554,774 shares or approximately 60 percent of the total shares 
outstanding. On December 31, 1945, Rustless Iron & Steel Corp. was 
merged into The American Rolling Mill Co. 

Rustless Iron & Steel Corp. was engaged in the manufacture of 
stainless steel ingots, billets, slabs, steel bar. rods, and wire. 

The reported primary purpose for its acquisition of the original 
interest in the acquired corporation was to insure The American Roll- 
ing Mill Co. a dependable source of supply of stainless steel ingots re- 
quired in its manufacture of stainless steel sheet and strip without 
having to build its own plant for melting stainless steel. 

Rustless Iron & Steel Corp.'s balance sheet as of December 31, 1936, 
showed net assets in the amount of $1,658,292.89 after deduction of 
current liabilities. Of this, $275,000 was offset by a first mortgage 
6-percent note, of which $125,000 was payable witliin the ensuing year; 
and the remaining $1,383,292.89 constituted the stockholders' equity. 
The corporation's net sales amounted to $818,309.71 in 19:^.4; to $1,682,- 
464 in 1935 and to $2,643,905.41 in 1936; and its net profit before 
providing for income taxes increased from a $23,033.78 loss in 1934 
to profits of $186,132.86 and $409,707.02 respectively in 1935 and 1936 
or amounted to $166,132.86 and $350,707.02, respectively, for the two 
latter yeai-s after providing for income taxes. 

Published records reveal that The American Rolling Mill Co., as of 
December 31, 1937, had acquired 406,300 shares of Rustless Iron & 
Steel Corp. common stock at a cost of $3,439,306.05, which is an average 
cost of $8.4649 per share. Applying this computed value to the 
403,700 shares, acquired through February 1937, a cost of approxi- 
mately $3,417,297.20 is obtained. However, this computed cost of a 
47-percent interest of the common stock of Rustless Iron & St«el Corp. 
is more than 2.4 times the book value of the entire equity and over 51/4 
times the value of the 47-percent interest in that equity. 

While legal control of Rustless Iron & Steel Corp. was not obtained 
by The American Rolling Mill Co. through this stock acquisition, in 



THE MERGER MOVEMENT 



131 



all probability actual control was exercised. Therefore the net assets 
under the control of the acquiring company were increased $1,658,292, 
which, related to the $110,451,344 of capital of The American Rolling 
Mill Co. at the beginning of that year, constituted an increment of 
about 1.5 percent. 

Comparison of the acquired company's previously stated 1936 net 
sales and profits before and after providing for income taxes, with The 
American Rolling Mill Co.'s net sales, for the year 1936, in the amount 
of $101,268,006, and its $7,815,763 of profit before providing for Federal 
income taxes, and its $6,447,137 of profit after deduction of income 
taxes, indicates that this acquisition augmented the acquiring com- 
pany's net sales volume about 2.61 percent, the net income before income 
taxes about 5.2 percent and the profit after deduction of income taxes 
about 5.4 percent. 

Acquisition of the capital stock of Colcord Coal Co. — On December 
21, 1942, The Aemrican Rolling Mill Co. purchased, for an undisclosed 
consideration, all of the outstanding stock of Colcord Coal Co., a 
bituminous coal mining company engaged in an extensive commercial 
coal business. The coal mined by this company was sold to the trade 
by its wholly owned subsidiary, Colcord Coal Sales Co. 

The American Rolling Mill Co. reported that this acquisition was 
made for the primary purpose of providing an additional source of 
coking coal for the operation of its coke ovens at the Hamilton, Ohio, 
plant. 

Colcord Coal Co. had, on December 31, 1942, net assets of $359,282 
after deduction of current liabilities, all of which constituted the 
.stockholdei*s' equity. 

These acquisitions are summarized as follows : 

The American Rolling Mill Co. 



Year 
acquired 



1917 
1921 
1927 
1927 
1929 
1930 
1934 
1934 
1934 
1935 
1936 
1937 
1942 



Company whose assets or capital stocks were acquired 



The Columbus Iron & Steel Co 

Ashland Iron & Mining Co 

Forged Steel Wheel Co.> 

Norton Iron Works, Inc.' 

Lyle Culvert & Road Equipment Co.». 

Sheffield Steel Corp - 

Belfont Steel & Wire Co...... 

East Works of Scullin Steel Co 

Sand Springs Steel Plant 

Calco Iron Pipe, Ltd..., - 

Hamilton Coke & Iron Co.* 

Rustless Iron & Steel Corp.» 

Colcord CoaICo.2 .,.. 



total. 



Capital 
increment 



$6, 238, 086 
9,315,728 

12, 500. 000 

1,679,002 

» 12, 868 

11,696,894 

» 288, 615 

2, 241, 400 

3, 809, 437 

1, 658, 292 

359, 282 



49, 196, 638 



* Portion of assets acquired. 

* Acquisition of capital stock. 

* Capital impairment. 



132 



REPORT OF FEDERAL TRADE COMMISSION 
THE COLORADO FUEL & IRON CORP. 



Organization a^d the predecessor company. — The Colorado Fuel & 
Iron Corp. was incorporated under the laws of the State of Colorado 
on April 16, 1936, pursuant to an approved plan of reorganization of 
The Colorado Fuel & Iron Company and its wholly-owned subsdiary, 
Colorado Industrial Co., and on July 1, 1936, acquired the assets and 
business thereof. 

The predecessor company. The Colorado Fuel & Iron Co., had been 
incorporated under the laws of Colorado on October 21, 1892, as a 
consolidation of Colorado Coal & Iron Co. and Colorado Fuel Co. 

The business of The Colorado Fuel & Iron Corp. is the manufacture 
and sale of iron and steel products and the mining and sale of coal. 
The principal products produced are rails, rail fastenings and other 
steel materials used by railroads, structural steel, bars, rods, wire, wire 
screens, wire products, cast-iron pipe, coke, and byproducts from the 
manufacture of coke. 

During the year 1924 The Colorado Fuel & Iron Co. acquired control 
of The American Fluorspar Mining, Leasing, and Transportation Co. 
through the purchase of a controlling interest of the outstanding 
capital stock. Control of net assets valued at $176,237 was thus 
acquired. 

Acquisitions hy the corporation. — From the date of organization in 
1936 to the end of 1945, The Colorado Fuel & Iron Corp. made only 
three acquisitions of independent enterprises— at least only three con- 
cerning which information was furnished. It acquired the business 
and assets of California Wire Cloth Co. on July 1, 1937, stock control 
of Union Ditch & Water Co. during the year ended June 30, 1938, and 
the business and assets of Wickwire Spencer Steel Co. on October 22, 
1945. Wickwire Spencer Steel Co. had acquired, 3 weeks earlier on 
October 1, 1945, the machinery, equipment, and inventory of Coburn 
Trolley Track Co. 

Acquisition of California Wire Cloth Co. and Union Ditch & Water 
6'^.— During the year ended June 30, 1938, The Colorado Fuel & Iron 
Corp. acquired all of the assets of California Wire Cloth Co., which 
was engaged in the business of manufacturing and selling wire net 
products, including stucco netting for the building trade fish-trap 
netting for the canning industry, spring wire, wire cloth for fly screens 
and other uses, heavy industrial screens, and other related products. 
It also acquired 1,205 shares of the capital stock of Union Ditch & 
Water Co., which controlled certain established and decreed water 
rights in the Arkansas River. 



r 



THE MERGER MOVEMENT 



133 



Net assets of a book valuation of approximately $854,263 were 
acquired, from California Wire Cloth Co., in exchange for 10,495 
shares of common stock of The Colorado Fuel & Iron Corp. at a total 
agreed valuation of $419,800. 

The corporation or its predecessor company had previously ac- 
quired 14,520% shares of the capital stock of Union Ditch & Water 
Co., which, together with the 1,205 shares purchased for $602.50 
during the year ended June 30, 1938, constituted a 52.418 percent 
interest in the capital stock of that company. 

Through these two acquisitions. The Colorado Fuel & Iron Corp. 
acquired control of additional net assets valued at $1,161,735. This 
amount, related to the $36,932,001 of capital of the corporation at the 
beginning of the year, constituted a capital increment of 3.2 percent. 

Sales and profit data for the year preceding acquisition was avail- 
able for California Wire Cloth Co. only. This company's net sales 
during 1936 amounted to $1,403,231, which, related to the $26,911,745 
of net sales by the acquiring corporation during the year ended June 
30, 1937, indicated an addition to net sales volume, through the acqui- 
sition, of 5.2 percent. In 1936 the acquired company's net income 
before provision for Federal income taxes amounted to $54,448 and 
net income after providing for Federal income taxes was $47,755; 
and these, related to the corresponding amounts of $1,659,929 and of 
$1,207,850, respectively, netted by The Colorado Fuel & Iron Corp. 
in the year ended June 30, 1937, indicate that this acquisition added 
3.3 percent and 4 percent, respectively, to the corporation's net income 
earning power before and after income taxes. 

Acquisition of Wickwire /Spencer Steel Co. — On October 22, 1945, 
The Colorado Fuel & Iron Corp. acquired all of the assets of Wickwire 
Spencer Steel Co., which was engaged in the manufacture of a wide 
variety of steel wire, high and low carbon wire, round, flat, or shaped 
wire, wire for springs ; it also manufactured wire rope and cables for 
oil, marine, timber, mining, construction, elevator, and other indus- 
tries and applications including aviation control cord for civilian and 
military airplanes; other products were insect screen cloth, poultry 
netting, hardware cloth, nails, picture cord and door springs, metal 
conveyor belts for a variety of industrial applications, card and 
napper clothing for textile and tobacco industries, woven cloth and 
perforated metals, and chain link fences. 

Three weeks earlier, on October 1, 1945, Wickwire Spencer Steel Co. 
had purchased, for $107,656 cash, all of the machinery, equipment, and 
inventory of Coburn Trolley Track Co. This company was engaged 
in the manufacture of hardware and parts for overhead sliding doors. 
The book valuation of the assets acquired was approximately $118,988. 



134 



REPORT OF FEDERAL TRADE COMMISSION 



I 



Thus the assets acquired from Wickwire Spencer Steel Co. included 
those assets which it had so recently purchased. 

The consolidated balance sheet of Wickwire Spencer Steel Co. and 
its subsidiaries as of May 31, 1945, showed net assets (after deducting 
current liabilities inclusive of the estimated income taxes for the 
period, January 1 to May 31, 1945) amounting to $20,552,092, which, 
together with $118,988 of assets purchased for $107,656 cash on 
October 1, 1945, resulted in net assets acquired, by The Colorado Fuel 
& Iron Corp., aggregating approximately $20,563,424. 

In payment for these net assets The Colorado Fuel & Iron Corp. 
issued $11,272,400 of $20 par value preferred stock to the Wickwire 
Spencer Steel Co. stockholders in exchange for their common stock. 

This acquired equity in net assets valued at $20,563,424, related to 
the $43,889,108 of capital of The Colorado Fuel & Iron Corp. at the 
beginning of the year, constituted a 46.8-percent increase in the capital 
under the control of the acquiring corporation. 

The combined net sales, of Wickwire Spencer Steel Co. and Coburn 
Trolley Track Co. during 1944, amounted to $26,338,699, which, related 
to $57,098,100 of net sales by the acquiring corporation during the year 
ended June 30, 1945, indicate an addition of 46.1 percent to net sales 
volume of The Colorado Fuel & Iron Corp. In 1944 the two vending 
companies' combined net income before providing for income taxes 
amounted to $2,399,799, and their combined net income after deducting 
income taxes was $1,578,869 ; and these, related to the corresponding 
amounts of $3,488,179 and of $1,954,979, respectively, netted by The 
Colorado Fuel & Iron Corp., in the year ended June 30, 1945, indicate 
that this acquisition added 68.8 percent and 80.8 percent, respectively, 
to the corporation's net income earning power before and after income 
taxes. 

These acquisitions are summarized as follows : 

The Colorado Fuel & Iron Corp. 



Year 
acquired 



1«87 
1987 
1945 



Company whose assets or capital stocks were acquired 



California Wire Cloth Co.. 
Union Ditch & Water Co.i 
Wickwire Spencer Steel Co 

Total .- -- 



Capital incre- 
ment 



$854,263 

307, 472 

20, 563, 424 



21,725,159 



1 Acquisition of capital stock. 



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